ANZ’s interim result for the first half of the 2017 financial year revealed that the bank saw a 15 per cent increase in profit before credit impairment and tax (to $5.57 billion), while cash profit rose by 23 per cent from $2.78 billion.
Although the figure marks a huge step up from last year, which saw heavy write downs as part of its initiatives to “move decisively and adapt to the changing environment by building a simpler, better capitalised and more balanced bank”, it is under the market expectation of a 25 per cent increase in cash profit.
The Australian business saw cash profit rise by 1 per cent, the New Zealand business by 2 per cent and the Institutional business by 52 per cent in the half year.
Institutional total risk weighted assets reduced by $23 billion over the past 12 months, expenses have fallen 9 per cent and returns have increased.
“These results show we are creating a very different bank, one that is consistently producing better outcomes for customers and for shareholders. These are still early days and I am pleased with the significant momentum we have now established in the business,” Mr Elliott said.
Speaking of the results, CEO Shayne Elliott said: “In 2016 we refreshed ANZ’s strategy to ensure we were on a path to rapidly adapt to the changing environment and deliver materially better outcomes for our customers, the community and shareholders…
“We also saw significant financial benefits emerging from the strategic and tactical decisions we took in 2016 to simplify the business, improve productivity and increase capital efficiency.
“Particular highlights were our strong organic capital generation performance that saw Australian Prudential Regulation Authority (APRA) Common Equity Tier 1 capital ratio above 10 per cent for the first time and, importantly for shareholders, return on equity increased materially for the first time since 2010 [to 11.8 per cent]."
Home loans and housing affordability
Looking at mortgages, the half-year results showed that the home loan portfolio now accounts for $256 billion funds under management (FUM) in Australia (with $34 billion coming through in the first half of the year), or 44 per cent of group lending. The average loan size in the book ticked up to $258,000 (or $382,000 for the first half of the year).
In terms of mortgage make up in Australia, 62 per cent of the loan book was for owner-occupiers (or 67 per cent of flow for the half), while 34 per cent was for investors. This marks a 2 per cent swing to owner-occupiers.
Over in New Zealand, the home loan portfolio saw a 1.4 per cent growth in the number of accounts held, with total FUM coming in at NZ$ 75 billion in the first half of the year.
The proportion of owner-occupiers versus investors held firm on the prior comparative period, with owner-occupiers making up 73 per cent of the book.
Mr Elliott commented: “Both Australia and New Zealand delivered a solid performance. We are growing prudently in home lending in Australia concentrating on owner-occupiers, and through a focus on the small business segment.”
In an interview on ANZ Bluenotes after the results were released, Mr Elliott touched on the housing market, saying that the bank wanted to be involved in finding the "right solutions" to the housing affordability conundrum.
He said: “I don’t know if this is a housing market [bubble]; Australia is a big place (as is New Zealand in many ways), and it depends where you are. There is absolutely not a housing bubble today in Western Australia, the housing bubble that people talk about is really restricted to Sydney and Melbourne, more or less. And even within Sydney and Melbourne, there are pockets where prices are continuing to rise and there is absolutely evidence today of areas where prices are stabilising or falling in some areas, so I think it’s a little simplistic to say there is a housing bubble.
“Where there is an issue, is that there is clearly an issue around housing affordability. And in particular, for people who are new to the market to be able to afford to get a deposit together.
"So, there are some challenges in the business. We’re a big player in that market and have a responsibility to respond to those customer needs in terms of how to make that easier for people and convenient, but to do it in a responsible way. So, there are some challenges there, there’s not going to be simple answers; I think government, industry and regulators each have a role to play and we’re really keen to be involved and find those right solutions to those issues.”
Touching on future outlook, Mr Elliott stated that this financial year, ANZ has signed agreements to sell its 20 per cent stake in Shanghai Rural Commercial Bank, the UDC Finance business in New Zealand and ANZ’s Retail and Wealth businesses in six Asian countries. These transactions are expected to complete by the first half of the financial year 2018, subject to regulatory approvals.
The ANZ CEO said: “The reshaping of our business over the past year has delivered strong outcomes for customers and shareholders, and has established a foundation for future growth and better returns.
“The environment for banking remains constrained with intense competition and pressure on margins, subdued lending growth, rapidly changing customer expectations and increasing regulation… We are responding decisively to these continuing pressures through a financial, digital and cultural transformation of ANZ.”
The bank will pay a fully-franked dividend of $0.80 a share, unchanged from the previous half.
[Related: ANZ breaks rank on banking reform]
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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.