Bad Aussie property loans contribute to Lloyds' £3 billion loss

Mounting bad property loans in Australia and Ireland have contributed to the UK bank Lloyds’ £3.25 billion ($5.08 billion) six-month loss after a £1.3 billion ($2.03 billion) pre-tax profit a year earlier.

Losses on Australian loans jumped to £586 million, some 29% higher than a year earlier, as Lloyds’ exposure to weakened property prices in its Australian loan book deteriorated.

It has £12.9 billion of loans to customers in Australia, with 35% deemed to be at risk. Lloyds’ Australian property book now has £4.54 billion of impaired loans in Australia.

“Australia, while benefiting from a commodities export boom, continues to be affected by deteriorating property markets in the geographic areas and property classes where the group is exposed,” the bank says.

“Impairment on the group's commercial real estate portfolio in Australasia was the main contributor to the half-year charge.

“This portfolio is heavily exposed to Australian non-metropolitan and New Zealand real estate markets, where market conditions remain challenging and asset valuations continue to decline.

“A specific charge of £70 million was also incurred in the period as a result of losses arising from the earthquake in New Zealand.

“Impaired coverage in Australia has reduced slightly due to the impact of write-offs and new impaired cases in the period requiring lower provisioning levels,” it notes.

Last December KordaMentha was appointed to the Oracle, Broadbeach project of the Nikiforides’ family development group, Niecon, at the behest of financier BOS International (Australia), a division of Lloyds Banking Group. The National Australia Bank was also a creditor.

Lloyds has also lost £9 billion on its Irish loans since the end of 2008 and said 64pc of its £27.6bn of loans in Ireland are now impaired.

Lloyds is now winding down its multibillion-dollar Australian property loan book, made through BOS International and Capital Finance, which had been among the more aggressive lenders to Australian developers.

Lloyds shares remain well below the 63p level at which the British taxpayer effectively bought its stake during the global financial crisis. The British government is hoping to sell down stakes in Lloyds and an 83% stake in Royal Bank of Scotland to raise money to cut its deficit.