A fat provisioning release and one-off gains on asset sales shielded ANZ Banking Group’s bottom line profit from the impact of flaccid loan growth and margin contraction in the six months to the end of March.
ANZ posted a statutory net profit of A$3.53 billion in the March half – 20 per cent up on the corresponding period last year.
However, in cash terms, the first half profit grew by only 4 per cent compared to the same period in 2021 as a host of negative business factors weighed on group earnings.
The bank is struggling to generate material loan growth in its Australian retail and commercial banking operation after blowouts in assessment waiting times last year.
The aggregate loan book for these businesses stood at $342 billion at the end of March - down $2 billion or 1 per cent on March last year.
According to APRA data, ANZ managed to grow its mortgage book by 0.1 per cent or $146 million in the March half, but most of that growth was posted in the December quarter.
The bank’s Australian mortgage business stopped growing again between January and March.
Margin contraction has compounded the negative impact of the shrinking loan book on interest income.
Chief executive Shayne Elliott said the bank had remediated problems with its mortgage processing platform and increased capacity to accept more loans from brokers.
But he also conceded that ANZ’s home loan growth rates were not likely to match other major banks until the end of the financial year.
“Investments in our home loan processing capacity in Australia drove positive balance sheet momentum while processing times are comparable to our major peers,” he said.
“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.”
Elliott’s commentary on the local mortgage business triggered a string of questions from analysts who noted that the three other big banks had been losing market share in the March half.
When asked whether ANZ was only committed to growing home loans in line with its underperforming cohort, Elliott clarified the bank’s strategic intent.
“That is not what we are trying to say,” he said.
“We need to be holding and growing market share in the broader sense of the term.
“We want all the responsible growth we can get.”
The Australian retail and commercial banking division managed to turn a bigger cash profit – up 11 per cent to $1.98 billion – but most of the growth was due to gains on asset sales and provisioning releases.
The division booked a $238 million gain on the part sale of its merchant acquiring business to Worldline and a $323 million release from its collective provision.
Elliott said the provisioning release reflected the improved risk profile of borrowers.
“Customers are generally emerging from the pandemic in a position of strength,” said chief executive, Shayne Elliott.
“An improving risk profile during the half drove the collective provisioning release and is a reflection of both observed portfolio strength and a recognition that some of the more acute risks from the pandemic are receding.”
ANZ’s institutional division, which services the bank’s corporate clients in Australia and overseas, suffered a 23 per cent slide in cash earnings to $730 million.
The group’s New Zealand banking subsidiary, which now accounts for one quarter of cash earnings, grew net profit by 2 per cent to $787 million.
During an investor briefing, chief financial officer Farhan Faruqui observed that the group interest revenue line could get an $800 million boost in the second half if official rate rises forecast by the bank’s economists are realised.
ANZ’s chief economist David Plank believes the RBA will push the cash rate to 1 per cent by the end of this year.
Faruqui said that 25 per cent of ANZ’s global loan book was sensitive to short term movements in official rates.
However, he qualified his observation, saying that any revenue benefit from official rate rises would be influenced by customer behaviour that was difficult to predict.
Faruqui also noted that revenue benefits from rate increases would initially flow from New Zealand and other overseas markets because they were more advanced than Australia in the monetary tightening cycle.
ANZ directors declared an unchanged interim dividend of 72 cents per share. The fully franked distribution will be paid to shareholders on 1 July.