ANZ Group Holdings Ltd. CEO Shayne Elliott warned that more of the bank's customers could come under stress due to higher cost-of-living, which would impact the lender.
"Clearly there are very real stresses in the economy. I mean interest rates have risen a lot relatively quickly. People are paying more tax because of bracket creep, and of course things like rents, and food and groceries, have been increasing at a pretty rapid rate," Elliott said on May 7 before ANZ announced its fiscal first-half results.
The bank reported cash profit of A$3.55 billion in the October 2023–March 2024 period, down 7.3% from A$3.83 billion in the first half of the previous fiscal year. Net interest income came in at A$7.90 billion for the half, down from A$8.50 billion. The bank's net interest margin for the period ended March 31 was 1.56%, compared with 1.65% in the period ended Sept. 30, and down from 1.75% in the period ended March 31, 2023.
Results in line
The results were nearly in line with the consensus GAAP net income estimate of A$3.54 billion on S&P Capital IQ Pro platform, with three analysts reporting.
The Reserve Bank of Australia has raised its benchmark cash rate to 4.35% from 0.10% in a series of tightening moves since May 2022. The central bank held steady at its latest monetary policy review on May 7, saying inflation is falling more gradually than expected. "Inflation is still weighing on people's real incomes and output growth has been subdued, reflecting weak household consumption growth," the central bank said.
Elliott expects the number of people under stress to increase as interest rates continue to hurt. "The number of customers and hardship rose this half, and while still lower than it has been in the past, it's extremely distressing for each of them. And we expect that number to rise further as cost of living bites harder and unemployment likely increases," the CEO said.
Supporting customers
The bank will continue to support customers with its strong balance sheet and diversified portfolio of businesses, Elliott said.
"Low unemployment over the next two years should keep ANZ's credit losses low, and close to pre-pandemic levels, in line with those for other major Australian banks. Nevertheless, banks in Australia, including ANZ, remain exposed to a jump in credit losses due to high household debt, elevated interest rates and prices, and global economic uncertainties," S&P Global Ratings said in a May 7 note.
ANZ CFO Farhan Faruqui expects margins to remain stable in the second half of the bank's fiscal year. "I think overall, I would say that margins are looking positive going into second half," he said during the results briefing.
ANZ is also looking to buyback up to A$2 billion worth of shares as part of its capital management plan. The on-market buyback is expected to reduce the bank's level 1 common equity Tier 1 (CET1) capital ratios by 54 basis points and its level 2 CET1 ratio by 46 basis points.
Ratings noted that ANZ's capital levels will "remain strong" despite the share buyback. "ANZ will manage its common equity Tier 1 ratio above 11%, higher than the 10.25% prudential requirement," Ratings said.
