ANZ Declines on Lower Lending Margins as Cash Profit Climbs 11%Narayanan Somasundaram
Australia & New Zealand Banking Group Ltd., the nation’s third-largest bank by market value, fell the most in three months as it forecast lending margins will decline, even as nine-month profit rose 11 percent.
Cash profit, which excludes one-time items, climbed to A$4.8 billion ($4.4 billion) in the nine months ended June 30, the Melbourne-based lender said in a statement today. Net profit rose 7 percent to A$4.7 billion.
ANZ joins Commonwealth Bank of Australia in posting higher profit even as the economy slows. Chief Executive Officer Michael Smith is focused on reducing costs as lending margins are under pressure in its international and institutional banking unit.
“Margins are under pressure and are likely to take another half to normalize,” Mark Nathan, managing partner at Sydney-based Arnhem Investment Management Pty said. “While the underlying businesses are tracking well, margin outlook would be received negatively.”
ANZ shares fell 3.2 percent at 10:12 a.m. in Sydney, on course for its biggest daily fall in three months. It has climbed 17 percent this year compared with a 10 percent rise for the benchmark S&P/ASX 200 index.
Group net interest margin excluding the bank’s global markets business, a key measure of lending profitability, dropped 3 basis points as at June 30 from three-months earlier and the lender expects it to decline by “several more basis points” by the end of the financial year.
It expects the international and institutional banking margin excluding global markets may drop 20 basis points in the second half due to lower interest rates and a move to reduce risk.
ANZ is the most Asian focused of the Australian lenders and wants 30 percent of its revenue to come from the Asia-Pacific region by 2017. It received 21 percent of its revenue from the region in the year to September 2012. Smith said concerns about Chinese growth are “overdone.”
The bank is in talks to sell its 39 percent stake in PT Bank Pan Indonesia to Tokyo-based Mizuho Financial Group Inc., a person with knowledge of the matter said this week as stricter capital rules force it to review minority partnerships. It did not comment on any talks in today’s statement.
A fall in the Australian dollar in the most recent quarter is positive, the lender said. A 5 percent drop in the currency over a six-month period would boost net profit by about 1.5 percent excluding currency hedging, it said. The Australian dollar traded at an average rate of 99 U.S. cents during the three months to June 30, down from $1.04 in the previous six months, according to the bank.
Given the current credit quality trends the Group expects the full year 2013 bad debt charge to be slightly lower than for 2012. The charge for bad debts in the nine months to June 30 was A$876 million, down 2 percent from a year-earlier, ANZ Bank said.
Core Tier 1 capital, a measure of the bank’s ability to absorb losses, slipped to 10.1 percent at the end of June from 10.3 percent in March and the bank has raised A$22 billion through bond sales, completing its wholesale funding task for the full year, it said.
Deposits increased 12 percent and lending climbed 8 percent. Expenses fell 0.5 percent, the lender said.
While “the Australian economic outlook has softened somewhat, there is cause for greater optimism as the effect of lower interest rates, a more competitive currency and the removal of some pre-election uncertainty underpin consumer confidence and economic activity,” Smith said in the statement. The Reserve Bank of Australia last week cut its economic growth outlook to 2.25 percent from 2.5 percent.
Commonwealth Bank of Australia, the nation’s biggest lender, posted record second-half cash profit on Aug. 14 as earnings from wealth management rose and bad-debt costs shrank.
National Australia Bank Ltd. announces its quarterly results on Aug. 20. Westpac Banking Corp. doesn’t update investors on its quarterly performance. At CBA, the fiscal year ends in June, compared with September for its main competitors.