Banks make grab for assets as bad debts soar

By: Jason Whittaker


Australian Banks are taking possession of assets in record numbers and conducting more insolvency work ‘in-house’ as a result of

Australian Banks are taking possession of assets in record numbers and conducting more insolvency work ‘in-house’ as a result of increasingly high debt costs, according to a corporate restructuring firm.

Restructuring Works' latest Business Stress Report reveals the annual cost of All Bank New Asset Impairment Charges (bad debts) by Australian Banks for the year to September 2009 has increased to $33.1 billion.

This compares to an average of around $4.4 billion per year between 1995 and 2008.

Meanwhile, the number of companies entering some form of insolvency administration was 9,544 for the year to November 2009.

Restructuring Works Director Cliff Sanderson admits corporate insolvency numbers have increased post-GFC, but says the increase has been less than expected.

"Hence, there has been a lot of discussion in the insolvency world about Banks ‘nursing’ their problem loans and mention of the lenient attitude of the ATO during the last year," Sanderson says.

"Our analysis shows that whilst it may be true that Banks are nursing many bad debts, at the same time, Banks have been taking possession of assets far more often than they used to," he says.

According to the Business Stress Report, the number of times Banks have moved to take possession of assets has increased to 1,342 for the year to November 2009.

This is almost triple the average of 523 from the previous five years.

While banks are appointing external Receivers in a majority of these cases, there is a trend for Banks for conduct a far higher proportion of the management of their bad debts ‘in-house’.

Data out this week shows the number of in-house Bank appointments has increased five-fold to 505 in the year to November 2009.

Similarly, Directors have been initiating appointments more often.

As pointed out by Sanderson, the number of insolvencies which have been initiated by Unsecured Creditors is virtually unchanged when comparing pre and post GFC.

"So the group that has been tolerant and helping nurse companies that are in financial difficulty is in fact the Unsecured Creditors – Trade Creditors and the ATO – whilst the Banks have been very active in pursuing debts and have not been backward in taking possession of assets," he says.

The number of companies entering some form of insolvency administration in the month of November 2009 was 747.

While this figure is a slight drop from the previous month, it has been relatively stable around 750 to 850 since the peak of 1,095 in March, 2009.

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