Speaking after releasing the full year results for Australia and New Zealand Banking Group Limited (ANZ), CEO Shayne Elliott said that he had “the first detailed paper and proposal sitting on [his] desk” looking into the possibility of the bank launching its own rate tracker mortgage (as suggested by the House of Representatives Standing Committee on Economics’ inquiry into the four major banks last month).
He revealed: “I've got a meeting on it early next week, with the team, to go through it. So, what we’re looking [at] there is: [Firstly], is there really demand for this? Because it's interesting when people say this could be attractive, [but] we've got to find out ‘Is there sufficient demand to make it worth our while?’. So we’re doing a little bit of market research to see that.
“Then, secondly, can we manage the risk? Because there really is a risk because ... what we’ll be charging customers, which will be the RBA cash rate plus something, will be different than the way we actually fund it. So there’s this ... basis risk between the two. The question is, can we manage that risk?”
Mr Elliott added that “early indications” show that the bank can manage the basis risk, and could “offer a product at probably not an unreasonable premium to the standard variable rate”. However, he said it “would be at a premium to the standard variable rate because it's riskier for [the bank]”.
The CEO concluded: “I’d say we’d be in a position to either say we’re going to offer it to the market, or not, in a matter of weeks and months ... It may well be something we could announce before Christmas, but I'm not totally sure because I haven’t gone through the detail.”
Mr Elliott also suggested that the bank would want to hold its share of the mortgage market (currently 15.5 per cent) steady, or even “give up a little of market share” as it’s happy with its position and wouldn’t want to chase “growth for growth’s sake”.
He said: “There's been a big transition where people were in higher paying jobs, maybe because of overtime, maybe they were in the mining sector, who are now in lower paid jobs. So their household income is either stagnant, flat, or it's falling. That means that it's a little bit harder for them to keep up with their mortgage payment or whatever payments and commitments they have.
“So, we're just saying, in that environment, let's just be really cautious about who we're lending to. We just don't think it's the right time to be out on the front foot too aggressively.
“We're still in the market, we still want to grow ... and we want to lend, we want to help people into their homes. But we just want to be a little bit more cautious than we've been in the past ... if that means we give up a little bit of market share, that's okay.”
Mr Elliott added: “We are running our business conservatively. There are enough signs [in the economy] to suggest that now is not the time to aggressively target growth. That has ramifications for where we focus and how we set internal expectations …
“The focus of my team is clear. We will continue to build our commercial and retail businesses in Australia and New Zealand but more cautiously than in the past few years, with more focus on digitisation and improving cost trajectory.”
Profit down by a quarter
Indeed, the bank has reported less strong financial results this year, with the financial results showing that statutory profits after tax for the financial year ending September 2016 fell by nearly a quarter (24 per cent) to $5.7 billion, largely due to a “significant reshaping of the business”.
According to the bank, the result reflects a “significant reshaping of the business driven by ANZ’s strategic focus to create a simple, better capitalised and more balanced bank that produces better outcomes for customers and shareholders”.
The bank said that $1.07 billion of charges (after tax) were related to “reshaping the group to position it for improved performance in future years”.
For example, nearly half ($522 million) of this related to a change in the application of the software capitalisation policy, $100 million (post tax) was due to additional restructuring changes to support the evolution of the group’s strategy and “underpin further productivity through reshaping of the workforce to reduce complexity and duplication”, and $168 million (post tax) was due to a derivative credit valuation adjustment, which “makes greater use of market credit information and more sophisticated exposure modelling”.
It is expected that next year’s results will also be affected by recent changes to the bank’s make up, following the sale of the bank’s retail and wealth businesses in Singapore, Hong Kong, China, Taiwan and Indonesia, and the potential sale of its life insurance, advice and superannuation and investments business in Australia.
[Related: ANZ to sell its Australian wealth business]
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.