ANZ's local division posts 6% drop in first quarter profit on skinnier margins

Wednesday 17th February 2016

Australia & New Zealand Banking Group's kiwi unit reported a 6 percent fall in first-quarter profit as tight lending competition ate into margins, even as it grabbed a bigger slice of the market.

Cash profit fell to $390 million in the three months ended Dec. 31 from $415 million a year earlier, ANZ New Zealand said in a statement. Net profit dropped 18 percent to $347 million.

The New Zealand branch's gross loan book expanded to $116.2 billion as at Dec. 31 from $107.7 billion, with mortgages rising to $68.67 billion from $62.75 billion. The local unit's net interest income rose 4 percent to $748 million. Customer deposits rose to $88.19 billion from $77.86 billion a year earlier.

The rise in net interest income reflected "continued lending growth, while interest margins have contracted due to strong lending competition and customer preference for fixed-rated mortgages," the bank said.

The New Zealand branch's provisions for credit impairments more than doubled to $27 million, which it said was due to fewer write-backs in the period.

The decline in earnings from the New Zealand branch contrasted with the Melbourne-based group's overall quarterly result, which saw cash profit rise 4 percent to A$1.85 billion in the three months ended Dec. 31. ANZ said job cuts offset a rising wage bill, helping contain increased costs. The lender's retail and small business segments underpinned an increase in income, while demand from corporate borrowers remained subdued.

The New Zealand earnings were supported by an 8 percent gain in retail lending, which posted profit of $196 million, while its commercial unit posted a 17 percent drop in earnings to $107 million. ANZ's New Zealand wealth division reported flat profit of $31 million, while its institutional banking business posted a 42 percent drop in earnings to $39 million.

The parent bank said retail lending on both sides of the Tasman "continued to perform well, led by further market share gains in home lending in key markets."

A downturn in Asian economic growth had little direct impact in the first quarter for the lender, but credit conditions are becoming more difficult in the second quarter, the bank said.

Because of that, ANZ said its group credit charge will be "a little above" A$800 million in the six months ending March 31, more than market expectations of A$735 million.

"Our performance in the first quarter was supported by strong expense and margin management and further progress will be apparent in the group's financial performance during the balance of the year," group chief executive Shayne Elliott said.

ANZ's dual-listed shares rose 0.4 percent to $25.11 on the NZX, and last traded at A$23.27 on the ASX.

BusinessDesk.co.nz

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