Oct. 25 (Bloomberg) -- Australia & New Zealand Banking Group Ltd., Australia’s third-largest bank by market value, missed analyst estimates as lower interest rates eroded the profitability of its lending business.
Net income in the 12 months ended Sept. 30 rose 6 percent to a record A$5.66 billion ($5.86 billion), Melbourne-based ANZ Bank said in a statement today. That fell short of the lowest of 11 analyst estimates compiled by Bloomberg, where the average expectation was for earnings of A$5.96 billion.
“The post-GFC lower growth business environment will be with us for the foreseeable future,” ANZ Bank Chief Executive Officer Michael Smith said in a statement. “The operating environment in 2013 looks more challenging with stronger headwinds in a number of areas.”
ANZ Bank, the most Asia-focused of Australia’s four largest lenders, is courting savings and demand for credit in the region’s emerging markets as loan growth at home slows. Return on equity, the key measure of profitability for banks, fell 60 basis points to 15.6 percent as ANZ Bank raised capital levels for regulatory reasons and interest rates fell.
Net interest margin excluding Global Markets declined 3 basis points from the end of the first half, reflecting increased funding costs from deposits, the bank said.
ANZ Bank shares declined 0.9 percent to A$25.38 at the close of trade in Sydney, while the benchmark S&P/ASX 200 index gained 0.1 percent.
The proportion of revenue generated outside of Australia and New Zealand rose to 21 percent, against a target of 20 percent the bank has set for this fiscal year.
“The differentiation of the Asian presence is a ‘strategic’ advantage for ANZ,” JPMorgan Chase & Co. analyst Scott Manning wrote in an Oct. 12 note to clients, “although we are relatively less bullish on the profitability of this growth channel.”
The Reserve Bank of Australia this month cut the nation’s benchmark borrowing cost to 3.25 percent, the lowest level since 2009, to help revive spending and underpin housing.
Deposits grew 12 percent while loans climbed 8 percent, after adjustments for currency effects, ANZ Bank said. Smith in August said he’d freeze his pay for another year in 2013 as competition for customer deposits pushes up costs.
National Australia Bank Ltd., the worst performer among Australia’s four biggest lenders this year, last week set aside an extra A$250 million for loans that might sour after cutting economic expectations at home and in the U.K., where it owns Clydesdale Bank. ANZ Bank cut impairment provisioning A$335 million, or 7 percent, from a year earlier, the company said.
Shares in ANZ bank have climbed 24 percent this year. Commonwealth Bank of Australia has advanced 16 percent, NAB 11 percent and Westpac Banking Corp. 26 percent. The S&P/ASX 200 index has risen 11 percent in the same period.
“There’s no question the global economy is softening,” Smith said in an investor webcast today. “The ripple effects of the chronically weak Europe are becoming more and more apparent.”
The recovery in the U.S. economy was “painfully slow,” he said, and a softening economic outlook in 2013 meant that the bank expects to set more money aside for asset price drops.
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