Trade and FX shape ANZ margins

The changing shape of ANZ's institutional lending business was a prominent theme in the bank's third quarter trading update published on Friday, with a planned "de-risking" translating as a route to lower margins.

ANZ said it earned a statutory profit of A$4.7 billion for the nine months to June 2013, up seven per cent compared with the same period in 2012. It said cash profit for the same period was $4.8 billion, a rise of 11 per cent.

The lower Australian dollar will benefit net profits by around 1.5 per cent, ignoring hedges, the bank said.

The group net interest margin has declined two basis points since the end of March, although margins were mainly stable in Australia.

This trend is set to continue. ANZ said the group NIM "is likely to decline several more basis points by the end of the financial year due to the continuing impact of the lower interest rate environment."

The reasons for this were the source of plenty of questions during Friday's investor call.

Shayne Elliott, ANZ's chief financial officer, explained that "it is not our strategy to aggressively grow corporate and institutional lending. The better quality names are lower risk names" and mostly offshore.

This, he said, "impacted margins, and so the dependence of [the bank] on institutional lending as a source of revenue is diminishing."

"The nature of our strategy is that if we are successful in growing trade finance business rather than bilaterals… it won't stop. So the de-risking will continue over the next five to seven years.

"We believe we are doing the right thing in de-risking the book."

On its outlook, ANZ said that its "performance remains in line with the expectations we had at the end of 2012, with full year revenue growth [being] slower than last year, and ongoing productivity improvements providing positive revenue-cost jaws."

The bank also took a positive tone regarding Australia.

It said that while the outlook "has softened somewhat, there is cause for greater optimism in the medium term as the effect of lower interest rates, a more competitive currency and the removal of some pre-election uncertainty underpin consumer confidence and economic activity."