ANZ boss warns of widening financial stress as profits slide 7 per cent
By Millie Muroi
ANZ Bank boss Shayne Elliott has underlined the financial stress building up outside the banking system as more borrowers are denied credit by banks, after its profits slipped 7 per cent in the latest half.
“There are very real stresses in the economy,” Elliott said. “Interest rates have risen a lot relatively quickly, people are paying more tax because of bracket creep, and of course, things like rents, and food and groceries, have been increasing at a pretty rapid rate.”
ANZ boss Shayne Elliott said the bank was able to support customers in financial stress.Credit: Anthony Kwan
However, Elliott said most of the financial stress appeared to be outside the banking system and that ANZ was well-positioned to help customers who did find themselves struggling to service their loans.
“Clearly, there is [stress],” he said. “It’s just not coming through the banks. The reality is, through a whole bunch of changes over time, it’s become harder to get credit.”
While Elliott said tightened lending standards had led to some people’s financial exclusion in terms of access to credit, he said the number of people in financial stress remained “remarkably low.”
“The people who have been doing it tough don’t have a credit card to default on, and they don’t have a home loan to get hardship assistance on,” he said, noting just 0.3 per cent of ANZ’s customers were in a financial hardship program. “That’s three in a thousand ... which is a staggeringly low number. Seventy-nine per cent of our customers are ahead on their home loan repayments.”
Elliott’s comments came on Tuesday as ANZ announced a cash profit of $3.55 billion for the six months to March, missing the $3.63 billion average analyst forecast in a Bloomberg survey and declared an interim dividend of 83 cents a share, 65 per cent franked. The bank also announced a $2 billion buyback, which it said reflected its strong capital position after selling a large part of its Malaysian AmBank holdings.
Shares in ANZ fell after the announcement but closed nearly flat at $28.79 a share.
ANZ’s net interest margin – a measure of profitability comparing the bank’s funding costs with what it charges for loans – fell 2 basis points to 1.63 per cent. It comes as mortgage competition remains a headwind for the local banking sector, with Elliott saying Australian and New Zealand retail banking was “more competitive than ever.”
ANZ’s Australian retail bank saw a 9 per cent drop in cash profit to $794 million even as it gained market share in home loans. However, Elliott maintained that the bank’s mortgage pricing remained above the cost of capital.
“About 60 per cent of our home loans go through the broker channel,” he said. “We absolutely don’t want to be, and are not, in general, writing loans below the cost of capital.”
It comes after NAB last week revealed that nearly two thirds of its home loans were being written below the cost of capital.
Despite continued competition in the mortgage market, Elliott said ANZ was keen to grow its loan book. “Let’s not forget how little we are,” he said. “Yes, we want to grow, yes we want to grow market share, yes we want to be bigger [and] have more market share in retail banking in Australia.”
The bank’s flagship digital offering, which includes app-based banking, grew to nearly 690,000 customers and $14 billion in deposits at the end of April, with customer deposits more broadly growing 5 per cent over the latest half.
ANZ’s Australian commercial business, which serves business clients, grew its loan book by 4 per cent and deposits by 3 per cent, but recorded a 5 per cent fall in cash profit to $665 million. The bank’s institutional business, which services clients who may be classified as wholesale, professional, accredited or expert, grew cash profit by 12 per cent to $1.5 billion, largely driven by a 27 per cent increase in market income.
ANZ’s New Zealand operations increased cash profit by 2 per cent to $852 million, but 90-day loan arrears jumped 18 per cent across the half.
Elliott expected both the domestic and international environments to remain challenging over the year. The next rate move is likely to be a cut, but rates will probably remain higher for several years.
“The Australian and New Zealand economies are likely to remain subdued, while geopolitical tensions, electoral uncertainty and the introduction of interventionist trade and industry policies will continue internationally,” he said. “We will have to get used to rates somewhere between 3 to 4 per cent as opposed to where it was when it was below 1 per cent.”
Jarden chief economist Carlos Cacho said ANZ’s latest figures were overall slightly disappointing.
“While cash profit of $3.55 billion was in line with expectations, that was helped by materially lower bad and doubtful debts,” he said. “The first half headline net interest margin was a big miss to expectations. The key positive for us out of the result was capital, which was above expectations and saw ANZ announce a $2 billion buyback.”
UBS head of Australian bank research John Storey said ANZ’s institutional business continued to be an attractive investment and differentiator from other banks, while the buyback, Suncorp bank integration and prospect of further capital return were additional positives.
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