National Australia Bank Ltd (NAB) chief executive Cameron Clyne says rising bad debt levels will be feature of most banks’ results over the “next couple” of half years, particularly if unemployment rises.

Mr Clyne said while Australia was experiencing a milder downturn that other countries around the world, its banks had already seen a rise in corporate credit impairments related to leveraged business models over late 2008 and early 2009.

“We are now very much in the same phase of the downturn and we saw that particularly, I think, in most banks’ results, with an up-tick in the March half (year) with bad and doubtful debts,” he told ABC Television.

“We think that’s going to be a feature in the next couple of halves.

“Obviously, consumer default really is a function of unemployment so if unemployment trends (up) … then that’s going to drive consumer default.”

Australia’s unemployment rate is currently 5.7 per cent and has been forecast by Treasury to rise to 8.25 per cent by June 2010, before peaking at 8.5 per cent in the following year.

Forecasters fear if the jobs market comes off, mortgage and personal loan defaults will rise in tandem.

But Mr Clyne said most of NAB’s mortgage customers - 90 per cent - are ahead in their mortgage repayments after maintaining payments despite a series of official and bank interest rate cuts, creating better conditions than seen in the last recession.

“So even if unemployment does go up next year we’re … more confident, than perhaps in the last cycle, we will be able to work with our customers to get a better outcome,” he said.

Mr Clyne also said Australia’s reliance on foreign capital flows for much of its credit funding needed to be addressed.

“If Australia’s going to have credit growth beyond its capacity to save then I think we need to look at opportunities to address that offshore funding reliance, because what becomes clear is when you have a crisis as we’ve been having, is that you’re slightly more vulnerable if you’re relying on other markets to fund you,” he said on Sunday.

Mr Clyne said issues that should be addressed include ways to improve domestic savings and the capacity for a bigger Australian fixed income debt market.

“I think what’s important is that the industry and a whole series of other players have that dialogue and say, okay, what can we do?” he added.

Mr Clyne said NAB was continuing to support its UK banking business, which had been hit badly during the global economic crisis, as it was in relatively good shape compared to its peers.

“The business there has attractive organic growth opportunities, there may be chances to strengthen its deposit franchises as the opportunities emerge, perhaps from distressed building societies and other things, so I think we support it through the cycle,” he said.

But Mr Clyne hinted also that the business may be sold at some point in the future.

“Quite clearly we need to make a call about whether that’s a business we see as growing, or one that maybe we seek to divest.

“But that’s not an appropriate time to be making that decision.”

AAP