Australia & New Zealand Banking Group Ltd. reported a 4.1 percent increase in underlying profit in the first quarter, saying credit growth is unlikely to return to pre-crisis levels in the “foreseeable future.”
Unaudited underlying post-tax profit adjusted for non-core items in the three months to Dec. 31 was A$1.48 billion ($1.59 billion), the Melbourne-based bank said today in a statement, without giving a year-earlier figure. It reported underlying profit in the first quarter last year of A$1.4 billion.
Chief Executive Officer Mike Smith is among bank executives fighting to maintain earnings as demand for mortgages tumbles to the weakest since 1977. ANZ Bank this week announced plans to slash about 1,000 jobs by Sept. 30, and on Feb. 10 raised its standard variable mortgage rate independent of the central bank, which left borrowing costs unchanged.
“Standard banking is performing OK given reasonably tough market conditions,” said Victor German, a Sydney-based banking analyst at Nomura Australia Ltd. who has a “neutral” rating on ANZ Bank shares. “Funding conditions are expensive and the opportunity to reprice have been limited until this quarter.”
ANZ Bank shares climbed 1.7 percent to A$21.55 in Sydney. ANZ Bank has fallen 16 percent in the past 12 months, larger rival Commonwealth Bank of Australia declined 8 percent in that time, while Westpac Banking Corp. shed 17 percent and National Australia Bank Ltd. lost 14 percent.
“There will not be a return to the level of credit growth that banks experienced pre-crisis for the foreseeable future, particularly in our major domestic markets in Australia and in New Zealand, as consumers reduce their gearing and businesses pace investments,” Smith said in today’s statement.
Westpac, Australia’s second-largest bank, reported yesterday first-quarter profit that was lower than a year earlier as rising funding costs squeezed the profitability of its lending. Unaudited cash earnings in the three months ended Dec. 31 were A$1.5 billion.
Commonwealth, the nation’s largest bank, said Feb. 15 that profit in the six months ended Dec. 31 climbed 19 percent to A$3.62 billion from a year earlier, helped by fewer soured loans. National Australia said Feb. 7 that its cash profit in the three months ended Dec. 31 rose 7.7 percent as it increased lending faster than rivals.
The global banking environment has become “significantly more challenging following the first phase of the global financial crisis,” Smith said in the statement. “Bank funding costs are continuing to rise as the deepening economic and financial crisis in Europe causes dislocation and volatility in global markets although prospects are brighter in the U.S.”
Australian banks may eliminate 7,000 jobs in the next two years, seeking to reduce labor costs that account for 58 percent of expenses, UBS AG said last month. ANZ Bank said Feb. 13 that it will eliminate about 1,000 positions by Sept. 30.
ANZ Bank staff in Australia were told Feb. 13 of 492 roles affected by the lender’s 1,000 in planned reductions.
Australia’s four-pillar banks, so named for a law that prevents them from buying each other, are managing slower demand for mortgages, which account for about 60 percent of all lending in the nation. Borrowing slumped after the central bank boosted interest rates seven times from October 2009 to November 2010. Policy makers cut the key rate by a quarter percentage point in November and December to 4.25 percent, an unexpectedly held the rate unchanged at this month’s meeting.
Credit to home buyers rose 5.4 percent in December from a year earlier, the smallest annual increase since 1977, when central bank data begins. The gain is also a third of the average monthly pace recorded in the decade to December 2009.
ANZ Bank’s mortgage lending rose 2.4 percent in the quarter from the previous three months, 1.5 times system growth and deposits gained 3.6 percent, or 1.3 times system.
The bank’s net interest margin, a measure of profitability of its lending, narrowed about 1 basis point from the previous six months. That figure doesn’t include ANZ Bank’s global markets business. At the bank’s Australian business, the net interest margin narrowed 9 basis points “due to higher funding and deposit growth,” it said.
ANZ Bank said its term wholesale funding program for 2012 is “in line with 2011” at around A$20 billion and the lender is ahead of schedule have raised about A$9 billion year-to-date.
ANZ Bank’s Tier 1 capital ratio, a measure of its ability to absorb potential losses, was 11 percent.
The bank’s unaudited statutory profit after tax was A$1.7 billion, it said today.