Banks are feeling particularly exposed through their $200 billion in commercial loans, many of which are not doing so well.
Of the largest financial commitments made on a geographical basis, four states – NSW, Victoria, Queensland and Western Australia – are now firmly in the sights of lenders looking to reduce the financial burden of commercial property loans on their balance sheets.
In particular, Queensland and WA have been cited by the two largest banks, the Commonwealth and Westpac, as a problem area given a reduced demand for commercial and large residential developments and an oversupply of land.
CBA’s troubles have grown as a result of its acquisition of BankWest whose growth strategy before that deal largely centred on the eastern states, with particular emphasis on lending to the property sector. This was in addition to the market values dropping in WA and associated problems with this.
According to analysis of the big four banks’ latest half-year results by BusinessDay, Commonwealth and the Westpac Group have more than $100 billion tied up in loans to the commercial property sector. In the case of the Commonwealth, its latest figures revealed that commercial property loans make up the largest proportion, 25 per cent, of its most troublesome exposures based on an industry-by-industry breakdown.
NSW is responsible for almost 50% of its mortgage loans while Victoria is responsible for almost 20 per cent, WA for 12 per cent and Queensland 11 per cent.
The major banks are continuing to report an increase in the level of of bad loans especially in the commercial property sector.
Westpac and St George both blamed the industry for a large part of the increase in their stressed exposures at the announcement of the group’s interim results earlier this month. The industry makes up nearly 33 per cent of the group’s business lending portfolio, and 16 per cent of the loan book is now classified as stressed.
NAB, which prides itself in being the largest “business” bank, mirrored the concerns of its larger rivals. Commercial property makes up $48.6 billion, or 15 per cent, of its total loans and it experienced significant increases in its bad credit loans and loan defaults, write-downs and those that are now past the key 90-day indicator for repayment for the period up to March 31 this year compared with the previous half.