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ANZ Bank annual profit may drop 25% on bad debt provisions

Monday 28th July 2008

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Australia & New Zealand Banking Group said full-year profit may drop as much as 25% because of increased provisioning for bad debts.

The Melbourne-based bank said deteriorating global credit markets, a weak New Zealand economy and slowing growth in Australia will result in provisions widening to A$1.2 billion in the second half, from A$980 million in the first, according to a statement today. Cash earnings per share will drop 20% to 25%, it said.

The announcement comes after National Australia Bank last week said it would take an additional A$830 million provision for collateralised debt obligations exposed to the US home mortgage market. NAB's stock tumbled about 11% on Friday.

New Zealand's economy probably contracted in the first half, on soaring prices of food, fuel and credit, and a weakening outlook spurred the central bank to cut its official cash rate last week. The weak outlook in New Zealand means profit growth at the bank's local unit probably will stall in the second half, it said.

The US sub-prime mortgage collapse has triggered more than $468 billion in losses and writedowns among banks and brokerages globally the past year, according to Bloomberg News. ANZ Bank posted a 7% decline in first-half profit.

By Jonathan Underhill

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