ANZ Sees Revenue at Lower End of Target, Debt Charges Fall

Australia & New Zealand Banking Group Ltd. (ANZ) forecast full-year revenue at the lower end of its target range and a sharper decline in bad-debt charges as it reported an 8 percent increase in nine-month profit.

While robust corporate balance sheets had led to improved credit quality, the Melbourne-based bank faced weak business investment and strong competition, it said in a statement today. ANZ shares lost 0.6 percent to A$32.54 as of 12:01 p.m. in Sydney, compared with gains of at least 0.4 percent for its three biggest rivals.

Net interest margin, a measure of lending profitability, was “slightly lower” in the nine months to June compared with the first half as competition for loans offset lower funding costs and deposit rates, the bank said. ANZ’s mortgage rates are at levels last seen in 2009.

“The third-quarter performance has been softer than the previous two quarters,” David Ellis, a Sydney-based analyst at Morningstar Inc., said by phone. “Revenue is now seen to be a touch softer and it’s probably a sign of institutional clients continuing to pay down debt.”

ANZ said it’s seeing signs of a pick-up in corporate credit and it expects full-year costs to grow less than revenue. Unaudited cash profit, which excludes one-time items, rose to A$5.2 billion ($4.8 billion) in the nine-month period from A$4.8 billion a year earlier, the bank said. Unaudited net profit climbed 8 percent to A$5 billion.

Sour Loans

The lender expects revenue to grow at the lower end of its 4 percent to 5 percent forecast range in the full year. It has previously said it expects expenses to grow 2 percent.

Bad-debt provisions for the three months ended June 30 were A$246 million compared with A$277 million reported last year. The bank expects provisions for the full year to be 12 percent lower than a year earlier, bigger than its previous estimate for a 10 percent drop.

“The same macro conditions that provided headwinds for revenue provided tailwinds for credit quality, which is reflected in the provision charge trend,” the bank said in a regulatory filing today.

ANZ added mortgage market share in Australia for an 18th consecutive quarter, it said. Customer deposits climbed 8.3 percent and net loans rose 5.8 percent in the first nine months, the company said.

Mortgage Rate

The central bank’s record-low interest rates have given lenders scope to cut borrowing costs, spurring demand for home loans. Outstanding mortgages in Australia climbed 6.4 percent in June from a year earlier, the fastest pace since March 2011, Reserve Bank of Australia data show.

ANZ reduced its standard variable mortgage rate to 5.88 percent in August 2013. The rate is the lowest since September 2009, according to Stephen Ries, a Melbourne-based spokesman.

The nation’s four biggest banks controlled 84 percent of the country’s mortgages in June among lenders tracked by the Australian Prudential Regulation Authority. ANZ had a 15 percent share, while market leader Commonwealth Bank of Australia had 27 percent, the data show.

ANZ’s business in Asia, where it has been expanding as part of a plan to generate as much as 30 percent of profit from outside Australia and New Zealand by 2017, had shown “strong growth,” the lender said.

The company derived 19 percent of profit from units outside those two countries in the six months ended March 31, filings show. It has almost tripled Asian employee numbers since 2009 and doubled active corporate customers in the region, according to filings on July 23.

Record Profit

ANZ’s common equity Tier 1 capital ratio, a measure of the bank’s ability to absorb losses was at 8.3 percent as of June, unchanged from three months earlier, it said. The lender expects the measure to climb to 8.5 percent by the end of September, it said.

CBA posted on Aug. 13 record second-half earnings that were 10 percent higher than a year earlier. National Australia Bank Ltd. reports quarterly profit on Aug. 18. Westpac Banking Corp. (WBC) doesn’t provide a quarterly update. CBA’s fiscal year ends in June, compared with September for its main competitors.

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

To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net Darren Boey, Edward Johnson

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