Australia and New Zealand Banking Group Ltd. CEO Shayne Elliott flagged the drag from growing inflationary pressures after the bank reported one of the "best sets of results" boosted by higher interest rates.
Cash profit rose 5% year over year in the fiscal year ended Sept. 30 to A$6.52 billion, the bank said in its Oct. 27 earnings statement. Net interest margin, the bank's main engine of income from lending, increased to 1.68% in the second half of the fiscal year, from 1.58% in the previous six-month period, as it was able to pass higher interest rates to its customers.
"Cost-of-living pressures are starting to have a meaningful impact, and the next six months will be testing," Elliott said on a post-earnings call. "This is particularly an issue for first-time homeowners who are only starting to build up their equity as well as those with less-stable employment," Elliott said.
Australia's consumer price index surged 7.3% year over year in September, the fastest inflation in more than three decades, government data released Oct. 26 showed.
Aggregate household balance sheets are the best they have been in 15 years, according to data from the Reserve Bank of Australia, but inflation has emerged as the biggest concern for several central banks across the world. The RBA raised its benchmark cash rate target by 25 basis points to 2.60% on Oct. 4, the sixth tightening move since May, as it aims to return inflation to the 2% to 3% range over time. More hikes may be in the offing after the latest inflation reading, according to analysts.
Future proofing
ANZ sharpened focus on retail and mortgage loans in Australia while seeking to reduce risk by selling its margin lending business to Bendigo and Adelaide Bank Ltd. in July and exiting the insurance businesses. It also announced a deal to buy Suncorp Group Ltd.'s banking arm in July for A$4.9 billion, the country's biggest banking deal in more than a decade. Suncorp Bank will add more than 1 million retail customers to ANZ and grow its gross loans and advances by 17%, it said.
ANZ reported a 35% increase in home loan processing capacity as of September 30 from the previous year after it missed the mark in taking advantage of the country's housing boom by relying on outdated home loan origination processes.
The bank has "restored momentum in Australian home loans, with application approval times back in line with industry peers," Elliott said.
"The result reflects many years of reshaping, de-risking and repositioning ANZ, each division made a positive contribution with good volume growth across the group, margins recovering in all businesses, and importantly, risk-adjusted margins improving across the board," Elliott said.
ANZ's earnings should remain robust over the next two years due to improving interest margins, S&P Global Ratings said in an Oct. 27 note.
"We expect ANZ's credit losses to remain low at about 15 basis points in the next two years, in line with those for other major Australian banks. The relatively benign economic outlook, low unemployment and strong household balance sheets should temper the risks to the Australian banking system from rising inflation, geopolitical uncertainties, and low business and consumer confidence," Ratings said.
