ANZ says books are fine but warns about economy and bad debts

The Australia and New Zealand Banking Group Limited's chief Mike Smith came to the bank's defence, saying their loan book is "in very good shape." The executive did elaborate that the bank will not be counting on improving credit quality to encourage profitability because of pressing economic conditions. Rather, they will have to focus on controlling costs.

During the bank's third-quarter trading update on Tuesday, Smith declared that the organisation is doing fine. The bank shook investors previously as it claimed the dramatic rise of bad debts. The conditions were further spurred by struggling resource states like Queensland and Western Australia. Analysts warned before that if bad-debt levels continue to be at long-term lows then they can soon deteriorate industry-wide."Are we at the bottom of the cycle? Yes," The Herald Sun quoted Smith.

He added, "Is it going to get significantly worse? I don't think. But it's not going to get better."

Deterioration of credit quality is possible since the big four banks have been banking on falling bad and doubtful debt charges for profit growth. Deterioration is also likely to hurt returns.

In its update, ANZ revealed a AU$5.4 billion cash profit for nine months to June 30, according to The Daily Telegraph. This is up four percent compared to the previous year. However, the bank raised its provision charge by 13 percent. This means AU$877 million worth to cover bad debts. According to Chief Financial Officer Shayne Elliot, the raise was due to weakness in the agribusiness and resources sectors.

Smith added that Australia’s decision to adopt a market-based system is in part due to the market volatility and currency situation of China. "Despite the volatility, this is good for China and good for its role in the global economy," he said. He did note that "high levels of global liquidity" will continue to affect margins. Economies may see continued market slowdown.

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