Shareholders in the ANZ Bank (ANZ) will be worried there are more time bombs to come following the third quarter trading update issued this morning which saw another rise in bad debt provisions here and in Asia.
For the second quarter in a row there a few questions surrounding the trading update, starting with that surge in bad debt provisions totalling in the hunderds of millions of dollars, compared with a year ago.
The ANZ revealed that its cash profit slipped 3% in Q3 to an unaudited $5.2 billion from $5.4 billion for the third quarter of 2014-15.
But the group’s statutory net profit slumped to $4.3 billion from $5.8 billion a year ago.
The ANZ said its profit before Provisions (a new measure and one not generally used by banks) "was up 5%, with income increasing at a faster rate than expenses. Increased technology, D&A and project costs were offset by productivity savings including lower employee (FTE) numbers. FTE reduction continued at a steady rate through the period.” In other words, the ANZ Bank has been sacking staff in the past three months at a fairly regular pace.
The ANZ revealed that “The total provision charge was $1.4 billion comprised of individual provisions of $1.34 billion and collective provisions of $60 million. The third quarter individual provision charge was in line with the average of the First Half.”
Given that the total provision charge for the third quarter of 2014-15 was $877 million, there seems to have been another big rise in bad debt provisioning, although that was not clear from the update. In fact the individual provision of $1.34 billion for the quarter was substantially higher than the $750 million figure from the third quarter update last year.
"Group Net Interest Margin (NIM) was stable assisted by portfolio rebalancing in Institutional offset by increased funding costs and asset pricing competition,” the bank said without disclosing more detail.
But the bank said in the update:
"In the nine months to 30 June 2016 there have been approximately $780 million of Specified Items impacts. Cash profit excludes non-core items included in Statutory Profit. These non-core adjustments mainly relate to accounting timing differences that will reverse through earnings in future periods. In the nine months to 30 June 2016 there have been approximately $100 million of after tax non-core adjustments.”
And there’s more costs to come in the current half year with software capitalisation charges, as the bank explained this morning:
"The ANZ 1H16 results outlined the impact of a number of items referred to as “Specified Items” which included changes to the application of the Group’s software capitalisation policy effective from 1 October 2015. These Specified Items are excluded from Adjusted Proforma.
"As outlined, the higher capitalisation threshold and direct expensing of more project costs will result in higher software expense in the second half (Year to Date FY16 $126 million pre-tax which includes 1H16 $73 million pre-tax)." That could put this cost close to $200 million for all of 2015-16.
ANZ Shayne Elliott CEO said in the statement: “ANZ has now established a consistent focus on delivering the strategic outcomes outlined to shareholders in our First Half 2016 result. This includes a steady pattern of strong cost management outcomes and initiatives to rebalance our portfolio to improve capital efficiency and returns.
“There continue to be opportunities for growth in Retail and Commercial in Australia and New Zealand, and in Institutional Banking including business supporting trade and capital flows in Asia. For example, our leadership in launching Apple Pay and Android Pay in Australia has seen us attract significant numbers of new to bank retail customers and helped deepen relationships with our existing customers.
“The revenue environment for banking, however, is more constrained and this means a consistently strong focus on productivity and capital efficiency disciplines is now fundamental to the way we are running the business.
“Further good progress was also made on our broader strategic priorities: creating a simpler, better capitalised, better balanced bank; investing in attractive, winning market positions; leading a purpose and values led transformation to benefit our customers, staff and the community; and building capability to successfully compete in the digital age,” Mr Elliott said.
And not a mention of the sharpr rise in bad debts. Pathetic.
