Australia & New Zealand Banking Group Ltd. (ANZ) climbed the most in four years to a record in Sydney trading after posting a 10 percent increase in first-half cash profit and raising dividends.
Shares of Australia’s third-largest lender by market value rose 5.8 percent to an unprecedented A$31.84 in Sydney. Cash earnings, which exclude one-time items, jumped to A$3.18 billion ($3.29 billion) in the six months ended March as costs dropped. The bank boosted its interim dividend to 73 Australian cents a share and said the near-term payout ratio will probably be at the upper end of its 65 percent to 70 percent target.
“The highlight was the dividend and the bank’s intention to progressively increase the payout ratio,” David Ellis, a Sydney-based analyst at Morningstar Inc. (MORN), said by phone. “We see tight cost management continuing, which along with moderate revenue growth will yield higher profits and higher dividends.”
Chief Executive Officer Michael Smith, who cut more than 2,000 jobs in the year ended March 31 to pare costs amid weak credit demand, is betting its Asian business will bolster returns on equity. ANZ Bank, the most Asia-focused of Australia’s four largest banks, said today it’s making “good progress” toward a target to get as much as 30 percent of its profit from the region by 2017.
Shares of the Melbourne-based lender have climbed 27 percent this year, outpacing a 12 percent gain in the benchmark S&P/ASX 200 index, which rose 1.3 percent today. Westpac Banking Corp. (WBC), National Australia Bank Ltd. (NAB), and Commonwealth Bank Australia (CBA) all gained more than 2 percent.
Cash profit for the period beat the A$3.13 billion median estimate of 10 analysts surveyed by Bloomberg News. Net income rose 1 percent to A$2.94 billion, according to a stock exchange filing. Cash operating expenses fell 8 percent from the previous half and 2 percent from a year earlier, while the lender’s cost to income ratio was 44.4 percent, the bank said in its filing. Operating income grew 4 percent.
“We are getting productivity improvements, in terms of being able to cope with higher volume of business at lower cost,” Smith said in a statement released in Melbourne. “I am genuinely positive about the near and medium term.”
ANZ Bank’s Australian unit saw a 9 percent increase in cash profit from a year earlier. Earnings from the Asia-Pacific, Europe and America unit rose 3 percent.
Its employee count fell to 47,419 from 49,509 a year earlier, the lender said. Australian banks are focusing on cost cuts to maintain profits as demand for mortgages remains close to the lowest on record.
Charges for bad debts increased to A$599 million from A$570 million a year ago and the lender said stress in some parts of the economy warrants a “cautious outlook.” The central bank in February reduced its 2013 growth forecast to about 2.5 percent as mining investment peaks.
Cash net interest margin, a measure of lending profitability, dropped 10 basis points to 2.25 percent. Deposits swelled 12 percent from a year earlier, outpacing lending growth, and customer deposits now make up 61 percent of ANZ Bank’s total funding base, it said.
The lender sold A$12.4 billion of bonds and expects to raise as much as A$25 billion in the year through Sept. 30. Borrowing costs for financial firms in global debt markets have tumbled to the lowest in more than five years, Bank of America Merrill Lynch index data show.
ANZ Bank’s Tier 1 capital, a measure of its ability to absorb future losses under the local regulator’s Basel III guidelines, was 8.2 percent. Return on equity expanded 80 basis points from the previous half to 15.5 percent, helped by earnings growth and a focus on capital efficiency, it said.
The lender is the first of the country’s so-called four pillar banks to announce earnings. Westpac is scheduled to report first-half results on May 3, followed by National Australia on May 9. Commonwealth Bank, the nation’s largest lender, reports third-quarter earnings on May 15.
“ANZ’s results show there is no major threat to full-year earnings of any of the major Australian banks,” Morningstar’s Ellis said. “2013 looks strong with dividends set to rise.”
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