By Eric Johnston
SUNCORP METWAY will shift $16.8 billion worth of souring corporate and property loans into a separate banking unit as it attempts to cut its exposure to higher-risk business.
The move, which will involve Suncorp pulling out of large commercial property deals, is expected to further pressure already stressed property markets as the bank places billions of dollars of so-called "non-core" loans into run-off over the next few years. This is likely to make it even tougher for developers to secure refinancing at the same time foreign banks are cutting back on financing.
As part of a split of its banking arm into core and non-core operations, Suncorp will pull out of corporate and leasing financing, to instead focus on retail banking, agribusiness and small to mid-sized business.
Analysts have argued the move is likely to make Suncorp's banking unit more attractive in a sale by untangling sound loans from troubled exposures.
The Brisbane-based lender admitted it took advantage of cheap wholesale funding, expanding into areas beyond its traditional mortgage and business banking business to fund highly leveraged property deals and complex corporate deals.
This came unstuck as credit markets froze and Suncorp's access to funding markets was cut. While most Australian banks have been hit by rising bad debts, Suncorp has been caught out in particular because of its exposure to Queensland's overheated commercial property market. In February, it warned its first-half bad debts were likely to run up to $355 million compared with $16 million for the first half a year ago.
Suncorp's group executive of banking, David Foster, insisted Suncorp was not establishing a "good bank" and a "bad bank". Rather, the move had been motivated by strategic decisions on funding and deposit taking.
A Deutsche Bank analyst, James Coghill, said Suncorp's banking split did not change the immediate risks posed by rising lending losses.