National Australia Bank may make further provision for CDOs

The bank established a provision of A$181 million on March 31 after disclosing an exposure to US$1.1 billion of CDOs via the provision of liquidity lines to conduit financing vehicles. CDOs are securities backed by a pool of bonds, loans and other assets.

Since March, "the economic environment has deteriorated further," NAB said in a statement. "There continues to be a risk that further provisioning may be required."

The global credit crunch left banks with losses from CDOs as credit ratings were slashed and sapped demand for the securities. The volume of CDOs sold in the first half of the year amounts to just 10% of sales in the same period of 2007, the Financial Times reported, citing data from Dealogic and Total Securitization.

NAB said the CDOs it is exposed to are currently meeting their principal and interest obligations.

Shares of NAB have declined about 22% on the ASX this year and were recently at A$27.28.

By Jonathan Underhill

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