ANZ's New Zealand profit honey pot is empty

ANZ New Zealand's fast profit growth of the past two years slowed in the last six months, as bad debt provisions normalised and cost savings from its 2012 merger with its National brand and branches were harder to find.

ANZ NZ's cash profit almost doubled to NZ$1.7 billion in the four years to 2014 because an economic recovery and an easing of lending turned bad debt provisions into write-backs, and the National merger of 2013 powered a 730 basis point improvement in its cost-to-income ratio.

But those big gains ended in the second half of the financial year to September. ANZ NZ's cash profit fell to NZ$795 million in the second half from NZ$887 million in the first half (although that first half result was inflated by a NZ$91 million insurance recovery related to frozen funds at its former ING unit).

ANZ NZ's provisions for bad debts were NZ$30 million in the second half, a NZ$69 million turnaround from write-backs of NZ$39 million in the first half. A rise in collective provisions rose in line with lending. A dip in loans from 2010 to 2012 and improving credit quality with economic activity fuelled the previous write-backs.  

Loans grew five per cent in the year to September, after growth of 4.2 per cent the previous year as ANZ grew market share in mortgages, small business lending and commercial lending.

ANZ NZ chief executive David Hisco told Banking Day the bank's decks were now cleared of the merger and it was focused on using its simplified products and broader network to grow lending. Cost savings would be harder to find in coming years, he said.

"It's been a perfect storm of good things happening for us with the provisions being in positive territory, as well as the costs coming out of the business," Hisco said of the strong profit growth in previous years.

"Obviously the low hanging fruit has gone, but we'll maintain that focus on simplification, which seems to be working for us. I'd like to think we can still keep our costs under control," he said.

Costs fell NZ$237 million between 2012 and 2013, but fell NZ$37 million between 2013 and 2014.

ANZ NZ's net interest margin fell one basis point to 2.48 per cent between 2013 and 2014 and Hisco was confident of holding the line again in the current year, although he reiterated that ANZ would keep pushing for market share growth in the mortgage market, where margin pressure has been greatest as customers moved from floating to fixed mortgages.

"We need to be competitive in the home loan market if we're going to win in New Zealand - full stop," he said.

Hisco said ANZ's dairy farming customers were in a much better position to handle an expected 40 per cent fall in dairy payouts in the current year because they had used last year's record high payout to repay debt.

"At this point in time the dairy industry is reasonably well positioned to suffer a low dairy payout price for a year or so," he said.

Hisco said there had been no impact from strikes over the last month because few staff were in the union and the bank's contingency plans had been effective.