WRAPUP 4-Bad debts weigh on Asian, European banks

Published: 29 Oct 2009 19:17:44 PST

* Deutsche doubles provisions for problem loans

* ANZ unwilling to call end to bad-debt cycle

* South Korea's KB sees bad debt charges falling

* Chinese banks' lending growth slowed in Q3

* European banks, insurers rally after 3 days of losses

AMSTERDAM/SYDNEY, Oct 29 - Bad debt levels will stay high in Asia and could rise further in Europe next year while signs of a clear global recovery are elusive, leading banks warned, though early evidence of a return to U.S. growth injected some optimism.

Bank shares in both regions initially fell sharply on Thursday as debt provision concerns outweighed a generally positive turn in earnings. In Europe the stocks turned positive by midday, though, putting an end to three days of steep losses driven by unease over EU restructuring plans for the sector.

"This isn't over yet," said Mike Smith, chief executive of Australia and New Zealand Banking Group. "Often it's the aftershocks that do the most damage. We still all need the U.S. economy to kick-start."

Smith spoke ahead of data showing the world's biggest economy grew in the third quarter for the first time in a year as consumer spending and investment in home-building rebounded, unofficially ending the worst recession in 70 years.

CLOUDS ON HORIZON

Deutsche Bank reported a profit in all of its divisions, but provisions for credit losses more than doubled year-on-year to 544 million euros.

Germany's biggest bank said its provisions, which analysts had expected to be higher, related mainly to exposure in Poland and Spain, and forecast they would peak in the United States and Europe within six months.

Standard Chartered Plc, based in the UK but focused on Asia, said it was benefiting from broad growth. The economic outlook was still fragile, with markets recovering faster in Asia, Africa and the Middle East than the West.

ANZ, the smallest of Australia's four big banks, said cash profit surged 79 percent to A$2.43 billion ($2.2 billion) for the half-year ended Sept 30, beating forecasts.

Still, bad debt charges in the second half surged 29 percent from a year earlier to A$1.63 billion. CEO Smith warned against complacency, saying although there were positive signs on the economic front in Asia and Australia, there were no real signs of a recovery in the United States.

"The management teams are just being circumspect. The clouds just don't blow away," said Marcus Truman, a portfolio manager at Integrity Investment Management in Sydney.

China's largest bank, ICBC, and its No.4 lender Bank of China reported healthy profit increases of about 20 percent, as both benefited from a surge in lending in the first half of the year under Beijing's economic stimulus plan.

Both said lending growth slowed sharply in the third quarter as the regulator leaned on banks to watch out for problem loans.

KB Financial, parent company of South Korea's largest bank, Kookmin, was more bullish, saying bad debt provisions would fall next year as fewer loans would go sour. The group reported a 69 percent drop in quarterly profit to 173.7 billion won ($145 million), much worse than expected, as it was hit by bad debt charges and a slow margin recovery.

ING HANGOVER LIFTS?

A bright spot for the banking sector was a rebound in shares of Dutch bancassurer ING after three days of losses wiped nearly 7 billion euros off of its market capitalisation. ING shares rose more than 7 percent in early trade Thursday, as three analysts upgraded their recommendations.

On Monday ING said it struck a restructuring deal with the European Commission that will see its balance sheet reduced by 45 percent by the end of 2013.

The scope of that deal raised concerns among investors in other banks that took state aid, notably in Ireland, where a bad-bank scheme is being counted on as the best way to prevent an Iceland-style collapse.

ING's Belgian neighbour KBC rallied Thursday as well, spiking as much as 16 percent after falling nearly 23 percent this week. Analysts said the sell-off was overdone as KBC committed to keeping its bancassurance model.

Meanwhile British lender Lloyds Banking Group confirmed it was looking at raising capital to buy its way out of a costly government asset protection scheme. The total to be raised could end up topping 20 billion pounds.

Improved sentiment spread across the financial sector, with the DJ Stoxx European banking index putting on 3 percent and the insurance index 2.6 percent by 1312 GMT, extending gains following publications of the U.S. GDP figures.

($1=1.113 Australian Dollar)

($1=0.6785 euro)