The ANZ Banking Group gave banking and financial stocks a timely boost yesterday and added to the growing impression that the worst of the credit crunch and recession may be just about over for the sector.
ANZ shares jumped more than 5% at one stage to a 15-month high, before easing to close up 4% at $21.30.
That was after the bank said cash profit was tracking broadly in line with the prior year at July and, more importantly, suggested that growth in bad debts was not as high as forecast.
ANZ Chief Executive Officer Mike Smith said: “In Australia and in Asia, the economies are showing early positive signs of recovery and although the cycle is still playing out, there are reasons for cautious optimism. In New Zealand, economic conditions remain difficult with the economic recovery likely to be much slower."
More importantly the growth in bad debts seems to be coming from the New Zealand economy, not Australia, according to the bank’s statements.
The shares rose 83c on the day, their strongest day’s trading for more than a year.
The day’s high of $21.58 was the highest level since late May 2008.
The bank said cash profit for the 10 months to July was tracking broadly in line with the prior year.
The figure for the corresponding period in fiscal 2008 was $2.9 billion, according to ANZ chief financial officer Peter Marriot in a briefing after the statement to the ASX.
The growth in bad debts also slowed, with impaired loans increasing by 7% in the June quarter, compared with 18% in the March quarter and 31% in the December quarter.
Mr Smith said that the level of impaired loans in the next half were unlikely to be materially different from the current half.
And that news, which was hinted at in the CBA’s recent 2009 financial statements and the recent Westpac trading update, will also give the Reserve Bank confidence that our already solid banking system, remains in that state, and may be approaching, or passing through the peak level of bad debts from the slowdown of the past 18 months.
The bank’s strong revenue trends had continued, driven largely by the performance of the institutional division, the ANZ said in the statement.
"In Australia and in Asia, the economies are showing early positive signs of recovery and although the cycle is still playing out, there are reasons for cautious optimism," Mr Smith said in the statement.
"In New Zealand, economic conditions remain difficult with the economic recovery likely to be much slower."
ANZ reiterated its May forecast that the total credit impairment charge for the second half to September was likely to be about 20% higher than the first half charge of $1.435 billion.
That would take the second half figure to about $1.72 billion.
At the end of July, the total provision coverage ratio had increased to about 1.73%, from 1.58% as of March 31.
The increase in provisions had been driven entirely by the New Zealand business.
The fiscal 2009 provision charge for New Zealand was likely to be about $NZ900 million ($A739 million), three times the previous year’s charge of $NZ302 million.
ANZ’s income trend had been largely driven by the performance of the institutional division, and particularly the global markets business, where revenue for the full year was likely to be $2.13 billion, double the first-half figure of $1.065 billion.
"Group Net Interest Margin (NIM) trends remain positive primarily reflecting improved asset margins and repricing for risk. New Zealand margins will decline year on year," the bank said in yesterday’s statement.
Net loans and advances for ANZ were up 3% for the 10 months, compared with the prior corresponding period.
Retail lending grew 9%, commercial lending increased by 3%, but institutional lending fell 7% as corporate borrowing dried up and listed companies large and small refinanced themselves via the stockmarket.
The decline in institutional lending was the result of the slower economic conditions, adjustment of loan books by companies and repayments made as a result of equity raisings, ANZ said.
Costs growth was in line with the first half, the bank said.
Margins in Australia had improved and the large increase in lending volumes was driven mainly by mortgages, which had increased 11% over the prior corresponding period.
Asia Pacific, Europe and the Americas performed extremely well with profit expected to grow by more than 60% over the previous year, although 70% of the expected full-year profit was delivered in the first half.
In New Zealand, net interest margins had contracted because of intense deposit competition, higher wholesale funding costs and more pre-payments.
ANZ described the New Zealand banking environment as difficult. (And it will be tough for the other majors because between them, they control around 80% of the Kiwi banking market.)
The bank completed its full-year funding requirements well ahead of schedule.
The prime liquidity portfolio stands at $60 billion, sufficient to cover over a year of offshore wholesale debt maturities.
The net funding cost of the bank continued to rise because new issuance costs were significantly higher than before the crisis started, ANZ said.
