ANZ lifts H1 profit, eyes improved margins

ANZ lifts H1 profit, eyes improved margins

ANZ lifts H1 profit, eyes improved margins

Australia and New Zealand Banking Group is counting on most homeowners and businesses being able to withstand higher interest rates, a day after the Reserve Bank lifted the cash rate from a record low 0.1 per cent.

The country’s third largest lender expects competition in the home loan market to remain intense despite expectations the central bank will continue to increase rates in an effort to combat rising inflation.

“Rising rates – that’s going to hurt some people, that’s going to take money out of people’s pockets. But at this point, people are well prepared for it,” CEO Shayne Elliott said.

“People have put money aside for a rainy day because of that uncertainty. They’ve paid down their most expensive debt. Credit card balances are way down. That’s a good thing in terms of people’s financial security.”

The RBA on Tuesday lifted its cash rate by 25 basis points to 0.35 per cent, the first time it has increased rates in more than a decade.

ANZ, along with its big four peers CBA, NAB and Westpac – has already announced it will pass on the full increase to borrowers.

The lender on Wednesday posted a modest lift in its first-half cash profit after managing to keep a lid on costs despite continuing competition for home loans.

Cash profit from continuing operations for the six months ending March 31 rose four per cent to $3.1 billion, slightly ahead of analyst estimates.

Additionally, statutory net profit for the half year was up 20 per cent from the previous corresponding period to $3.5 billion as ANZ wound back provisions worth a net $284 million amid improving economic conditions.

It had previously flagged softer revenue and lower margins in the December quarter amid rising competition and slow processing times in the key home loans business.

However, ANZ on Wednesday said investments in processing capacity in Australia had helped drive positive balance sheet momentum in the first half.

“We are on target to grow in line with the Australian major banks by the end of our financial year but will do so with an eye to our margin performance,” Mr Elliott said.

Still, pressure in the home loan market and a weaker performance in its institutional business resulted in the lender’s net interest margin – a key measure of its profitability – contracting six basis points from the preceding six months to 1.58 per cent. It had recorded a NIM of 1.63 per cent a year ago.

CFO Farhan Faruqui is now forecasting an improvement in second-half margins, helped by higher deposit-driven earnings growth as interest rates rise.

“While underlying earnings still benefited from reserve releases, lower margins and weak growth in the Australian mortgage market continued to drag on revenue growth,” ratings agency Moody’s said.

“ANZ is well positioned in face of a rising interest rate environment which should initially improve margins without compromising asset quality,” it added.

By 1400 AEST, ANZ shares were up 0.6 per cent at $27.42 in a firm Australian market.

The stock gave up some of its earlier gains after CEO Elliott told an investor briefing the bank was no longer focused on an absolute cost reduction, given the current inflationary pressures. ANZ had previously flagged a $8 billion cost reduction target.

“Looking ahead, the operating environment will be very different. And as a company that is clearly tied to macro outcomes we will need to change our business settings and investment priorities,” Mr Elliott said.

The lender announced it would apply to the prudential regulator to establish a non-operating holding company to separate its banking and non-banking businesses.

ANZ will pay a fully franked interim dividend of 72 cents per share, up two cents from the fiscal 2021 first half.

ANZ FIRST-HALF LIFT

* Operating income up 14 per cent to $9.5 billion

* Cash profit up 4 per cent to $3.1 billion

* Net profit up 20 per cent to $3.5 billion

* Interim dividend 72 cents per share, up from 70 cents per share.

Prashant Mehra
(Australian Associated Press)