According to yesterday’s trading update and subsequent briefing from CEO Mike Smith and the bank’s chief financial officer Shayne Elliott, times are challenging, the ANZ is hunkering down with a sharper focus on costs, but at the same time there are lots of positives, businesses are performing strongly and in some, the bank is ahead of its rivals.
But the mostly upbeat briefing didn’t really convince investors and ANZ shares ended down 1.8% at $2.97 and still well short of the $32.50 price level the shares were at before the $3 billion fund raising almost a fortnight ago.
As previously mentioned when it raised $2.5 billion in capital on August 6, the bank’s trading update yesterday confirmed that cash profit in the first nine months of the September 30 financial year rose 4% to $5.4 billion.
The update said revenue and expenses were both growing at a similar pace after foreign exchange movements, and its net interest margin was "broadly stable”, helped by improvements in funding costs.
Chief executive Mike Smith said the overall environment was similar to the previous half – when it grew 5%.
"Economies in our key markets have slowed a little compared to previous years and global conditions remain challenging," Mr Smith said.
“In these circumstances we are continuing to sharpen our focus on the management of capital and on the control of expenses."
The ANZ Bank said it was sharpening its focus on keeping costs under control and capital management, as it faces a “challenging” global banking environment.
And, after announcing the $3 billion fund raising (the $500 million issue to retail shareholders is underway) the ANZ said it had no plans to underwrite its dividend investment plan at its full-year results are announced in late October.
“The recent capital raising has allowed ANZ to deal with known regulatory change, such as the higher capital adequacy requirements for Australian Mortgages and positions ANZ’s capital ratios within the top quartile of international peers," Mr Smith said yesterday.
Looking at its businesses, the bank said its Australian arm had performed strongly, posting 5% growth in customer numbers in its consumer-facing retail bank and its business bank.
In New Zealand, where ANZ is the biggest bank, the bank was expanding its balance sheet ahead of rivals.
"We have shifted gears in our New Zealand business over the past few years and are seeing further benefits in terms of both market share growth and productivity," Mr Smith said.
And the international and institutional arm is performing well in “difficult market conditions”.
Mr Smith said global forces including the plunge in commodity prices and very high levels of liquidity provided "headwinds" to the institutional and international arm. At the same time, he said recent market volatility and changes in the currency were a positive influence on this part of the business.
“We are continuing to simplify the business and increase the focus on improving returns," he said. ANZ also said returns from its wealth division were “positive".
The big issue for the ANZ from the August 6 mini update and discussion since has been the rise in bad debts, and Mr Smith and Mr Elliot went out of their way yesterday to try and hose down those concerns down.
Chief financial officer Elliott said the main reason for the rise was because of collective provisions – which are held against unidentified loan losses but can indicate falling loan quality – rather than individual provisions for specific loans that have been identified as having gone bad.
This rise, he said, was mainly because of trends in mining and agriculture. "Essentially last year we were witnessing risk upgrades across many sectors, while this year we have seen a moderate number of risk downgrades. These generally relate to resource and agri sector," Mr Elliott said.
He said there had been a "small increase" in mortgage customers falling behind on repayments in the resource-exposed states of Western Australia and Queensland.
Mr Smith told the briefing that credit quality had reached the bottom of a cycle that has cut banks’ bad debt provisions to the lowest in years.
The ANZ is forecasting that impaired loans will lift to 0.21% of its portfolio in the full year, up from 0.19% last year.
Mr Smith said that bad debts had bottomed, added he did not think they would get significantly worse.
