UPDATE 1-Commonwealth Bank sees higher bad-debt charges

(Adds quote, background)

SYDNEY, Nov 13 (Reuters) - Commonwealth Bank of Australia (CBA.AX), the country's second-largest lender, warned investors on Thursday to expect a big jump in bad debts and voiced concerns over the economic outlook for at least the next 18 months.

The bank, which recently bought local rival BankWest from stressed UK bank HBOS HBOS.L, issued the warning in a statement ahead of its annual meeting, saying that bad-debt charges would make a major dent on its half-year performance to end-December.

It blamed just three failed companies -- Wall Street investment bank Lehman Brothers (LEHMQ.PK) and two local firms -- for much of the forecast increase in bad-debt provisions.

"While there is no evidence of systemic credit issues, the group's exposure to Lehman Brothers, Allco Finance Group Ltd AFG.AX and ABC Learning Centres Ltd ABS.AX will result in significantly higher first half provisions," the bank said.

It did not give an estimate for bad-debt provisions.

Last week, Commonwealth said it had A$240 million ($153 million) in senior debt exposure to collapsed child-care group ABC Learning Centres and a A$170 million exposure to collapsed investment firm Allco.

Australian banks are battling tough global credit markets, a slowing domestic economy and risk of rising defaults among Australian corporate borrowers, but have not been hit as hard as some of its U.S and European counterparties.

Industry analysts expect Australian banks' bad debt provisions to rise in the months ahead, and expect a number of the banks would have to raise capital. The country's biggest lender, National Australia Bank (NAB.AX), raised A$3 billion in a fully underwritten share issue this week.

Commonwealth Bank said its underlying business performance had been relatively strong through the September quarter, despite difficult environmental and market conditions.

Overall credit quality in the bank's consumer and commercial books remained sound, it added.

Liquid assets totalled A$66 billion, and the bank was well advanced with its 2009 term funding programme, which was approximately 40 percent completed, it said.

CBA's funds under administration at Sept. 30 dropped 3.8 percent for the quarter, to A$178 billion, amid a fall in equity markets both at home and globally.

The bank raised A$2 billion in an institutional share placement last month to help fund its A$2.1 billion acquisition of British bank HBOS's HBOS.L Australian unit BankWest. (Reporting by Mette Fraende, Editing by Mark Bendeich)