ANZ records first $2b profit: 'Keeping close eye on recent home-buyers'

Thursday, 27 October 2022

ANZ banking group identified 518 breaches of its code of conduct during its last financial year.

ANZ's chief executive says the bank is keeping a close eye on borrowers who were stress-tested for their home loans at a rate below current market interest rates.

The country's largest bank posted its first $2 billion annual profit on Thursday.

In the 12 months to September 30, it made a cash net profit after tax of $2.064b, up 8% compared with the year before. Its statutory net profit after tax, which includes gains and losses from economic hedges, was $2.229b, up 20%.

Net interest income was up 10%. Chief executive Antonia Watson said the 8% increase in profit was a result of a combination of pent-up economic activity after the pandemic and a buoyant housing market.

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She said the bank was aware that rising interest rates and a potential slowdown in the economy could be a risk for its customers.

It had put together a team to monitor customers for signs they might be concerned about their finances or coming under financial pressure.

She said the lowest test rate that the bank used for assessing home loan applications during the pandemic was 5.8%.

On Thursday, all the big banks were advertising rates above that level.

“That's one of the cohorts we are looking at particularly closely,” Watson said.

Antonia Watson says ANZ customers are in a good position overall.

She said if people who bought over the past couple of years slipped into negative equity, meaning they owed more than their houses were worth, it was not necessarily a concern as long as they could still make their home loan repayments.

“What we have tended to see is customers themselves saying, ‘I want to protect the equity I've got, so I'm going to choose to sell my house.’

“At the moment, the vast majority of customers are in a sound financial position, but we know that many will roll off fixed home loans on to higher rates over the coming year. When that happens, some will be under financial pressure.”

She said it wasn’t in anyone’s interests for people to get into financial stress.

“That’s why we’re keen to talk with customers sooner rather than later if there are any signs of problems to see if, for example, we can structure their finances differently to relieve some pressure.”

Watson said the bank had a social responsibility to help customers who were struggling.

But she said customers seemed so far to have put themselves in a good position, having paid off their loans more quickly and saving well. Across customers for whom the bank had the information, pay had risen 6%.

Watson said the result was higher than she would have expected at the start of the year. The bank had not expected interest rates to rise as fast as they had this year. Banks tend to make more money when interest rates rise, even if their cost of funding increases.

“Coming into the 2021-22 financial year, we didn’t anticipate the New Zealand economy would hold up as well as it has,” Watson said.

“While inflation and supply chain problems, particularly for importers and exporters, were an issue for many customers throughout the year, the desire to get back to some kind of normal kept consumer spending up.

“While the housing market has quietened significantly in recent months, following four official cash rate rises since May, it was strong for most of the financial year.”

Home lending increased $5.3b over the 12 months, to $104b.

“Banks are a reflection of the economies they operate in, and New Zealand has been far more resilient than expected,” Watson said.

Banking expert Claire Matthews, from Massey University, said that when interest rates started to rise, banks’ margins on lending increased. Banks had also been doing larger amounts of lending in recent times, with house prices being higher.

She said ANZ’s profits were not likely to grow substantially over the next year, but neither were they likely to fall substantially.

Interest rate rises still had some way to go, but some borrowers could hit trouble.

Matthews’ colleague, David Tripe, said he had been surprised by ANZ’s growth in net interest income. About half was the result of balance sheet growth, he said, and another portion was from increases in shareholder equity, which the bank did not have to pay interest on. But the rest of the boost in interest income was the result of better margins.

He said the profit probably reflected the size of the bank and was likely to mean a return on assets of about 1%.

He said it was still not clear what impact any looming downturn could have on ANZ’s portfolio.

ANZ said non-housing lending to business and institutional customers, including agribusiness, increased by $700 million.

The Reserve Bank’s new capital rules equate to an increase in minimum regulatory capital required of $2.2b over the course of the financial year.