THE Australia & New Zealand Banking Group has increased bad-debt provisions by 71 percent, joining the Commonwealth Bank of Australia in predicting rising defaults this year as higher interest rates curb economic growth.

ANZ tumbled 6.6 percent in Sydney, the biggest drop since January 22, Bloomberg News said. The Melbourne-based bank set aside about A$975 million (US$895 million) in the six months to March 31 for potential non-performing loans, compared with A$567 million in all of fiscal 2007, it said yesterday.

While ANZ has avoided the worst of the global slump in mortgage securities, it's been hurt by the collapse of clients including Centro Properties and Opes Prime.

Bigger rivals the Commonwealth Bank and the National Australia Bank also fell yesterday on concern the credit crisis and higher interest rates would spark more defaults.

"Bad-debt provisions have been at the lowest that I can remember, and that's starting to change for the banks now as repeated interest rate increases start to bite their customers," said Hans Kunnen of Sydney-based Colonial First State Global Management.

Global squeeze

ANZ's provision for bad debts reflects rating downgrades in the commercial property and broking industries, increased asset growth as customers returned to banks as their main source of funding, and allowances for the impact of the global credit squeeze.

Australia's banks face rising provisions as companies including the Allco Finance Group, Centro and MFS struggle to repay debt. Lenders raised interest rates faster than the central bank this year to pass on increased wholesale funding costs.

The nation's four biggest banks booked a combined A$2.27 billion of provisions for bad debts in their 2007 fiscal year, and lent an estimated A$6.53 billion to troubled companies, according to a Lehman Brothers Holdings analyst.

Reports in the past week showed retail sales and job advertisements falling and construction shrinking, adding to evidence that the highest interest rates in almost 12 years are cooling Australia's A$1 trillion economy. The central bank raised its benchmark interest rate to 7.25 percent in March, the fourth increase since August.

ANZ said it was taking a "conservative approach" when reviewing possible provisions. It sold half of the assets it seized from collapsed stockbroker Opes Prime to recover its money. ANZ also funded Centro Properties, the Australian property trust now struggling to refinance A$4.9 billion of debt.

National Australia fell 4.7 percent in Sydney and the Commonwealth Bank slid 3.1 percent. The Westpac Banking Corp said recently that rising short-term borrowing charges would cost it about A$85 million in the first half.

National Australia, the nation's biggest bank, said in February that most of its A$221 million gain from shares received in Visa Inc's initial public offer will be used to offset a one-off bad debt provision.