Australian ANZ sees bigger margins on rate hike, cash profit rises

  • H1 cash profit increased by 4.1%
  • Said on track to grow in line with peers by year end
  • Increase in New Zealand home loan market share
  • Declares a dividend of A$0.72 per share
  • Share up around 2%, best intraday gain since mid-March

May 4 (Reuters) – Australia and New Zealand Banking Group (ANZ.AX), the country’s fourth-largest lender, beat first-half profit estimates as it earmarked less money for related defaults to COVID-19 and signaled the end of narrowing margins as interest rates begin to rise.

The Melbourne-based retail lender has set an optimistic tone for a series of Australian banking results expected next week, the first since the country’s central bank ended a decade of rate cuts by raising the official rate one day sooner amid runaway inflation and booming property. prices. Read more

Australia’s so-called big banks have seen their profit margins shrink as historically low interest rates have created stiff competition. A reversal of this trend, which ANZ believes could continue for an extended period, would see these margins rise again.

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“All other things being equal… [margins] have bottomed out,” CEO Shayne Elliott said on a call with analysts Wednesday. “But the big unknown is the level of competition. There should be, there will be, an expansion of margins. The degree of it is difficult to predict.”

Helped by the release of A$284m of credit provisions – cash set aside for bad loans – ANZ said profit from continuing operations rose 4.1% from a year ago for reach A$3.11 billion ($2.2 billion) in the six months to the end of March, ahead of a Visible Alpha consensus estimate of A$2.99 ​​billion.

But its net interest margin – a closely watched measure that shows the difference between borrowers’ interest payments and the profit the bank makes on loans – shrank to 1.58% from 1.63% on the same period.

ANZ has faced the added hurdle of losing share of the mortgage market, the engine of Australian bank profits, since 2019, due to issues of slow application processing times linked to understaffing.

Elliott said the bank now plans to grow its mortgage portfolio at the same rate as other major national banks by the end of the fiscal year.

ANZ shares were up 0.7% mid-term, in line with peers, while the broader market (.AXJO) was flat. Banks are seen to benefit from rising interest rates because they can delay paying additional interest on deposit accounts while charging higher mortgage rates.

“The weak core earnings result should worry investors, however, the second half should improve as rising rates begin to push net interest margins higher,” Citi analysts said in a note.

ANZ also said it planned to introduce a new corporate structure to protect banking customers from any impact from non-banking activities, a method used by global banks.

The bank declared an interim dividend of 72 Australian cents per share, up from 70 Australian cents a year earlier.

No. 2 lender National Australia Bank Ltd (NAB.AX) is set to release its half-year results on Thursday, while Westpac Banking Corp (WBC.AX) announces interim results on May 9 and top lender Commonwealth Bank of Australia provides an update. quarterly day on May 12.

($1 = 1.4088 Australian dollars)

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Reporting by Byron Kaye in Sydney and Sameer Manekar and Harish Sridharan in Bengaluru; Editing by Shailesh Kuber and Richard Pullin

Our standards: The Thomson Reuters Trust Principles.

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