Yorkshire Bank parent’s extra bad debt provision

YORKSHIRE Bank’s Australian parent company said deteriorating conditions in the UK and a weaker outlook for Australia’s economy are behind an extra 250m Australian dollars (£161m) bad debt provision.

The announcement, days before National Australia Bank is due to report annual results, knocked nearly four per cent off its shares.

NAB said it expected fourth-quarter earnings of A$1.4bn, versus analyst expectations for A$1.5bn. “Economic cycle adjustment” on its provisions has now increased to A$320m, said the bank.

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Yorkshire Bank declined to elaborate on the provisions, or say how much of the increase is attributable to the UK arm.

“Balance sheet strength remains a key priority for the group and this increase in the economic cycle adjustment will further strengthen our provision coverage,” said NAB chief executive Cameron Clyne.

“The Australian economy has performed well relative to other advanced economies, although business conditions across sectors and the various states remain mixed. The UK economy has now posted three consecutive quarters of declining GDP and expectations for recovery in 2013 have continued to be downgraded.

“Considering the increased level of uncertainty, we feel that increasing the economic cycle adjustment on the collective provision is a prudent measure at this time.”

Australia, among the few developed countries to avoid a recession during the global financial crisis, is feeling the impact of slowing Chinese growth.

NAB recently cut its forecast for Australian GDP growth in 2013 to 2.5 per cent from 3.3 per cent. The Australian bank added conditions in the UK have deteriorated in the past three months, and “economic recovery is likely to be slower than previously expected”.

Yorkshire and its sister bank Clydesdale were loss-making at the half-year point and are focusing on lending in the North and Scotland after a strategic review called for heavy cost-cutting.

The UK restructuring will see 1,400 job cuts and the closure of 29 business banking centres in the South as the banks retrench to their heartlands.

Around 100 of these job losses will be in Yorkshire before the end of the year.

Yorkshire Bank is also merging its Leeds back office operations into one site at Merrion Way, closing its Brunswick Point office.

Yorkshire and Clydesdale have also ceased commercial property lending, with their Australian parent taking control of a £6.2bn book of problematic loans where bad debts have been rising.

UK banks are also hiking their provisions to cover mis-sold payment protection insurance.

Yorkshire and Clydesdale Banks have so far set aside £220m to compensate customers mis-sold PPI.