ANZ Bank First-Half Profit Up 11% on New Zealand, Asia Gains

Australia & New Zealand Banking Group Ltd., the country’s third-largest lender by market value, posted an 11 percent rise in first-half cash profit led by gains at its businesses in Asia and New Zealand.

Cash profit, which excludes one-time items, climbed to A$3.52 billion ($3.27 billion) in the six months ended March 31 from A$3.18 billion a year earlier, the Melbourne-based lender said in a statement today. That beat the A$3.4 billion mean estimate of seven analysts surveyed by Bloomberg. Net income rose 15 percent to A$3.38 billion from A$2.94 billion.

ANZ wants to double the profit contribution from Asia to as much as 30 percent by 2017 and is focused on increasing returns from the region after six years of investment. Increasing profitability outside Australia and New Zealand is key to the bank’s goal of lifting return on equity across the group to at least 16 percent by 2016 from 15.5 percent, it said today.

“They are adding a lot of assets in Asia and returns are improving in the region though still well below group average,” Brett Le Mesurier, a Sydney-based analyst at BBY Ltd. by phone. “ANZ is demonstrating good momentum with higher revenue growth, strong asset quality albeit with some pressure on margins. The question is still whether the bank needs to improve its Tier 1 capital ratio.”

ANZ shares, which touched a record on April 29, fell 1.2 percent to A$34.07 in Sydney, trimming gains for the year to 5.7 percent. This year’s rise is the second-best performance among the major lenders and compares with a 1.8 percent gain for the benchmark S&P/ASX 200 index.

Trading Income

ANZ’s global markets operating income climbed 11 percent to A$1.24 billion in the latest period and the bank will increase reliance on trading products, such as foreign exchange, and its capital markets business, the head of its international and institutional banking unit, Andrew Geczy, said in a conference call.

“Markets income increased to 13 percent of total income and remains at elevated levels,” said Victor German, a Sydney-based analyst at Nomura Holdings Inc. “This increase in markets income presented a A$235 million tailwind to revenue in the first half.”

The bank’s trading value at risk, a measure of potential trading losses in one day, climbed to A$15.2 million in March from A$5.6 million six months earlier.

Capital Ratio

ANZ Bank’s Tier 1 capital, a measure of its ability to absorb future losses under the local regulator’s Basel 3 guidelines, was 8.3 percent as of March 31, compared with 8.5 percent in September. Chief Financial officer Shayne Elliott said the lender targeted a Tier 1 ratio of 8.5 percent to 9 percent.

The bank boosted its interim dividend to 83 Australian cents a share from 73 cents a year earlier, beating the 81 cent median estimate of six analysts surveyed by Bloomberg.

ANZ Bank’s Asia Pacific, Europe and America business cash profit climbed 48 percent while profit at its New Zealand unit expanded 38 percent. The Australian unit saw a 5 percent increase in cash profit in the six months from a year earlier, the bank said. ANZ added market share in home loans for a seventeenth consecutive quarter while its institutional and commercial customer numbers increased 12 percent.

“Our international business, particularly Asia, is firing on all cylinders with revenue and profits again growing strongly, and a sustained improvement in returns,” Chief Executive Officer Michael Smith said in today’s statement.

ANZ reiterated its goal of reducing its cost-to-income ratio to 43 percent or better by 2016. The ratio fell to 44.3 percent in the latest period from 44.5 percent a year earlier, it said.

Bad Debts Fall

Cash net-interest margin, a measure of lending profitability, dropped 10 basis points to 2.15 percent in the six months from a year earlier, ANZ said. Margins at its international and institutional banking unit, which includes its Asian business, also fell 10 basis points, it said.

Charges for bad debts in the six months fell 12 percent to A$528 million from A$599 million a year earlier, ANZ 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. Westpac Banking Corp. reports on May 5 followed by National Australia Bank Ltd. on May. 8. Commonwealth Bank of Australia, the nation’s largest lender by market value, reports quarterly profit on May 14. CBA’s fiscal year ends in June, compared with September for its main competitors.

Before it's here, it's on the Bloomberg Terminal.