Australian bank chief says high credit cost to affect banks, businesses for some time

The difficulty of obtaining credit and its high cost will adversely affect banks and businesses for some time, the chief executive of Australia & New Zealand Banking Group said Thursday.

"These pressures aren't over globally and not over in Australia," ANZ's Mike Smith said at a business forum.

A global credit crunch flowing out of the U.S. subprime mortgage crisis has pushed money market interest rates higher in Australia, eating into bank profits and forcing up the cost of borrowing for businesses and home owners.

"Liquidity is placing pressure on some corporates and there is increasing volatility in the share market," Smith said.

ANZ said Monday it will take higher provisions for potential bad debts _ including a US$200 million (euro136.5 million) charge for exposure to a U.S. monoline insurer _ which will offset an anticipated 11.5 percent rise in underlying profit.

It will also make a 90 million Australian dollar (US$82 million; euro55.95 million) provision for exposure to an unnamed Australian property group, which analysts expect is Centro Properties, and a A$51 million (US$47 million; euro32 million) provision for a failed miner.

The crisis has pushed Australian bank share prices sharply lower in recent weeks.

Smith didn't comment on ANZ's precise exposure to Centro Properties but said the bank didn't perceive the exposure to be material.

He also said there was more bad news to come in Europe and the U.S. but that Australian banks were well placed to ride out future turmoil. Smith was speaking Thursday at the City of Sydney's China Business Summit about investment both in and from China.

Separately, St. George Bank Ltd. said it has exposure to several Australian companies facing problems repaying debt, sending the bank's shares sharply lower.

In a statement, St. George, Australia's fifth-largest lender by market capitalization, said it has exposure to MFS Ltd., Centro Properties Ltd. and Allco Finance Group Ltd.

Although St. George said it expects to recover most of its exposures, jitters about the group's potential problem loans sent its shares to a three-and-a-half-year low and again rocked sentiment toward the sector.

St. George shares dropped more than 5 percent to A$23.25 before recovering to finish at A$24.60, down 2 Australian cents.

National Australia Bank shares fell 0.3 percent to A$29.55, ANZ shares were flat at A$22 and Commonwealth Bank of Australia shares rose 0.3 percent.

The market's benchmark S&P/ASX 200 index rose 1.6 percent Thursday to 5,583.4 points.