ANZ profit drops, bank expects more loan defaults

Thursday, 30 April 2020

ANZ chief economist Sharon Zollner talks to Radio Tarana's Vandhna Bhan on the recovery of the economy after the Covid-19 lockdown.

ANZ has reported a profit drop as the beginning of the impact of Covid-19 is felt.

The New Zealand arm of the bank reported a profit of $789 million for the six months to the end of March, down 15 per cent compared to the same time a year earlier.

The ANZ group made A$1.55 billion (NZ$1.65b) in the six months, down 51 per cent.

The group's profit decline was driven by credit impairment charges of A$1.674b, including increased credit reserves for Covid-19 impacts of A$1.031b.

* Kiwibank, Westpac, ANZ and BNZ report high demand for mortgage relief

* Applications open for $6.25 billion of loans to struggling businesses**

In New Zealand, ANZ was lifted by sales of its insurance arm OnePath Life and ANZ's share in Paymark.

ANZ has grown fat in the past decade on New Zealand’s ever-increasing mortgage market, says Morgan Godfery.

But its result included a $200m increase in its credit impairment charge, to $232m, reflecting the threat of Covid-19 to the economy.

ANZ New Zealand chief executive Antonia Watson said banks were a reflection of the financial well-being of customers and the economies in which they operated.

She said the bank was also suffering a margin squeeze because of the very low interest rate environment.

How quickly things would improve would depend on how promptly New Zealand could get the economy moving again, she said.

'While the Covid-19 crisis only began in earnest in New Zealand at the end of March the collective provision has increased substantially to recognise the possible impacts on economic activity as we go through FY20 and beyond. The extent to which this impact continues in the second half will depend on how and when New Zealand fully emerges from lockdown.'

More activity was happening in level three, she said, but businesses and consumers needed confidence that the country was moving in the right direction. A shift back to level four would be a heavy blow.

She said the bank kept an eye on its costs when times were tough but it had not had to claim the wage subsidy and had been able to pay staff in full through the lockdown period and would continue to do so.

'New Zealand's response to Covid-19 has resulted in extraordinary changes to the economy, the fortunes of businesses and the lives of customers,' she said.

The wage subsidy had been very effective for ANZ's business customers, she said.

'New Zealand has made much better progress in fighting the virus than nearly all countries, and that potentially paves the way to a quicker economic recovery. While that's encouraging there will be many challenges as the country emerges from the high level of response and starts to rebuild.

ANZ had helped 30,000 personal loan, home loan and business loan customers with repayment deferrals or adjustments to lending, worth about $12b.

It had deferred 19,600 home loans and moved 20,900 home loans to interest-only. Watson said while house prices were expected to drop, New Zealanders' household balance sheets were generally in good shape because of years of strong house price growth and loan-to-value restrictions on lending.

The country was in a better position going into this downturn than it had been in the Global Financial Crisis, she said.

ANZ had granted 1345 temporary overdraft facilities to businesses needing more working capital, worth around $25 million. 'There's a lot of working capital and liquidity around to help business growth.

'We have helped thousands of businesses to hunker down by using financial strategies such as deferring loan repayments or increasing overdraft facilities in preparation for potentially further impacts in the near future,' Watson said.

'We're also a participant in the Business Finance Guarantee Scheme, a risk-sharing arrangement for small to medium enterprise lending with the Government. It is early days for this scheme as businesses make use of the liquidity provided by the Covid-19 wage subsidy scheme, payment deferrals and temporary facilities before committing to further term lending.'

She said there was limited demand for the loans at present, but that would increase over time. The loans were positioned to suit businesses that were looking towards the future and how they would come out of the downturn.

ANZ had given consideration to how it would cope with a negative interest rate environment but Watson said that would be inappropriate in a situation such as this, where businesses and consumers were reluctant to take on extra debt.

'We're optimistic many businesses will survive, but we know the next few months will be difficult and we're preparing for a higher-than-usual number of loan defaults.'

ANZ will not pay a dividend to shareholders this half-year.