By Robert Carry

Australian banks have escaped the worst of the financial crisis and bad debts are likely to begin to drop off, according to Westpac chief executive Gail Kelly.

The comments came in the wake of Westpac’s annual report which revealed a 10.7% decline in profits to $3.45bn, due mainly to bad debt.

Kelly added that although the banking sector was set to stabilise, future profits were likely to be more modest than in the years prior to the financial crisis.

She added, “One thing’s for certain, we won’t be going back to the world the way it was before.”

According to the Sydney Morning Herald, Westpac’s bad-debt charges for the year came in at $3.2bn with customers struggling with repayments primarily at the beginning of the year.

Although Kelly predicted 2010 to be a “tough year from a revenue growth point of view,” she broke ranks with other bank leaders by welcoming the Reserve Bank of Australia’s rate hike.

She described the RBA’s move as “modest and moderate”. Shares in Westpac finished 1.4% higher at $25.79 on release of the report.