Australia & New Zealand Banking Group Ltd. (ANZ), the country’s third-largest lender by market value, posted a 13 percent rise in second-half cash profit on higher lending and lower costs, sending its shares to an all-time high.
Cash profit, which excludes one-time items, climbed to A$3.3 billion ($3.2 billion) in the six months ended Sept. 30 from A$2.9 billion a year earlier, the Melbourne-based lender said in a statement today. That beat the A$3.2 billion median estimate of eight analysts surveyed by Bloomberg. Net income rose 22 percent to A$3.3 billion from A$2.7 billion.
ANZ, which is the most Asian-focused among Australian banks, has expanded its local market share in mortgages and business lending. Chief Executive Officer Michael Smith sought to boost lending by matching National Australia Bank Ltd. (NAB) in offering the lowest mortgage rate among the nation’s four largest banks.
“The results ticked all the boxes with strong improvements in cost-income ratios and return on equity,” David Ellis, a Sydney-based analyst at Morningstar Inc. said by telephone. “ANZ’s target to cut cost-to-income ratio further is achievable.”
ANZ climbed as much as 2.5 percent to A$34.06 and traded at A$33.87 as of 11:42 a.m. in Sydney, the highest since the stock began trading. The shares have climbed 35 percent this year. The benchmark S&P/ASX 200 Index (AS51) was 0.4 percent lower, trimming gains for the year to 17 percent.
The bank boosted its final dividend to 91 Australian cents a share from 79 cents a year earlier. The median estimate of 8 analysts surveyed by Bloomberg was for a dividend of 86 cents.
ANZ’s cash profit rose to a record for a fifth year to A$6.5 billion in the 12 months ended Sept. 30 from A$5.8 billion a year earlier while net income in the year rose 11 percent to A$6.3 billion from A$5.7 billion.
“We’ve got a lot more gas in the tank,” Smith said in a video message to staff, according to a transcript. “We should be able to take another 2 percent off the cost-to-income ratio over the next two years, and indeed improve our return on equity to get it above 16 percent.”
ANZ’s cost-to-income ratio dropped to 44.8 percent in the year to Sept. 30 from 47.7 percent a year earlier while return on equity was 15.3 percent, the lender said. The bank’s total employees fell 2 percent to 47,512.
Australia’s major banks have a cost-to-income ratio of 40 percent to 45 percent, which is at the low end of the range of their global competitors, raising questions on how much more room the banks have to improve it further without straining risk-management controls, the Reserve Bank of Australia said in its Financial Stability Review issued in September.
ANZ Bank’s Australian unit saw an 11 percent increase in cash profit in the 12 months from a year earlier, the bank said, while earnings from the Asia-Pacific, Europe and America unit rose 20 percent.
The value of ANZ’s Australian mortgages climbed 7 percent in the year, the bank said in today’s statement. That beat total Australian home lending growth of 4.7 percent in August from a year earlier, up from a record low pace of 4.4 percent in March, Reserve Bank of Australia data show.
Demand for mortgages is increasing after the central bank dropped its benchmark interest rate by 225 basis points since late 2011 to a record low of 2.5 percent and banks cut mortgage rates to a four-year low.
Home prices surged to a record in September, led by gains in Sydney and Melbourne, an index released Oct. 1 by RP Data-Rismark showed. The gauge jumped 5.5 percent last month from a year earlier across Australia’s major cities and was 0.7 percent higher than the previous record in October 2010.
ANZ’s Australian corporate and commercial bank lending also rose 7 percent in the 12 month period, according to the statement. Deposits climbed 12 percent from a year earlier and made up 62 percent of its total funding, it said.
Cash net interest margin, a measure of lending profitability, dropped 9 basis points to 2.22 percent in the year.
“When I look at the change in our net interest margin, 95 percent is the result of the actually underlying rate structure,” Smith said in an interview with Bloomberg Television today. “So when rates start to turn again, you’d expect to see an improvement.”
Margins dropped the most in its international and institutional banking unit, which includes its Asian business, falling 41 basis points, it said.
Smith said the bank wasn’t optimistic about further acquisitions in Asia as price expectations for banks in the region were too high.
“About 1.5 times price-to-book-value will be realistic,” he said in the interview. “For us, that would be accretive and that is important.”
ANZ wants to double non-Australia and New Zealand profits to as much as 30 percent of its total by 2017. It is focused on trade finance, foreign exchange and cash management deposits in Asia.
Yue Xiu Group bid HK$11.6 billion ($1.5 billion) for 75 percent of Hong Kong’s Chong Hing Bank Ltd. (1111) in a deal that values the lender at about 2 times book value. ANZ Bank was among five bidders for Chong Hing, Oriental Daily reported Sept. 16.
ANZ Bank’s Tier 1 capital, a measure of its ability to absorb future losses under the local regulator’s Basel III guidelines, was 8.5 percent as of Sept. 30, compared with 7.97 percent as of June 30, it said.
Charges for bad debts in the year fell 5 percent to A$1.2 billion from A$1.3 billion a year ago and newly impaired assets in the year dropped 22 percent, ANZ said.
“Asset quality is improving, which bodes well for future earnings and is a massive vote of confidence for the Australian banking sector,” Ellis said.
ANZ is the first of the country’s so-called four pillar banks, named after a law that prohibits merging with each other, to announce earnings. NAB reports tomorrow, followed by Westpac Banking Corp. (WBC) on Nov. 4. Commonwealth Bank of Australia, the nation’s largest lender by market value, reports quarterly profit on Nov. 6.
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