ANZ Bank First Quarter Profit Drops 20% on Margin Pressure

Australia and New Zealand Banking Group Ltd., the nation’s third-largest bank by market value, said first-quarter profit fell 20 percent as margins were squeezed at its New Zealand and international businesses.

Unaudited statutory profit after tax was A$1.36 billion ($1.41 billion) for the three months ended Dec. 31, the Melbourne-based bank said in a statement today. That compares with A$1.7 billion a year earlier. Unaudited cash earnings, which exclude some one-time items, rose to A$1.53 billion from A$1.44 billion, it said.

ANZ Bank, the most Asia-focused of Australia’s four largest lenders, is betting on growth in overseas markets amid the weakest mortgage demand in Australia since 1977. Chief Executive Officer Michael Smith, who cut 1,000 jobs last year, is reining in expenses as competition for deposits weighs on funding costs.

“Margin pressure especially for the international and institutional business is a sore point in an otherwise reasonable result,” said Simon Burge, chief investment officer at Above the Index Asset Management Pty Ltd. “We expect ANZ to focus on maintaining margins going ahead.”

The lender fell 1 percent to A$27.77 in Sydney, paring gains for the year to 11 percent. The benchmark S&P/ASX 200 index fell 0.1 percent, trimming this year’s gain to 8.3 percent.

Global Volatility

Commonwealth Bank of Australia, the country’s largest lender by market value, on Feb. 13 reported first-half profit rose 1 percent to a record and said reduced global volatility may help revive loan demand. National Australia Bank Ltd. said last week first-quarter cash profit increased 3.6 percent.

ANZ Bank’s net interest margin, a measure of profitability of its lending, was unchanged from the end of September, according to today’s statement. Expenses were “slightly down” and the bank said it expected cost growth to be lower than income growth for the first half.

“In New Zealand, although cost management has been a continued focus, margins have been softer,” Smith said in today’s statement. “In international and institutional banking, expenses were well controlled however margins remain under pressure, albeit less so than in 2012.”

Australian home-loan approvals fell in December for a third month and the proportion to first-home buyers slumped to the lowest in more than eight years, the country’s statistics bureau said on Feb. 11.

Average lending assets grew 7.6 percent and customer deposits climbed 12.3 percent, ANZ Bank said today. It had raised about half its annual wholesale funding requirement as of Dec. 31.

“With limited levers left to generate further earnings growth we expect a strong focus on cost containment,” Sydney- based Ben Koo, an analyst at Goldman Sachs Group Inc., said before the announcement. “In particular, we expect this to be a feature of ANZ’s international and institutional division.”

To contact the reporter on this story: Narayanan Somasundaram in Sydney at nsomasundara@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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