Contraction in mortgage market a ‘conscious decision’: ANZ CEO

ANZ has released its financial results for the first half of the 2019 financial year (1H19), reporting a 32.2 per cent decline in mortgage settlements, down from $31 billion in 1H18 to $21 billion.

Its total home loan portfolio dropped by $2 billion in the six months ending 31 March 2019, falling from $271 billion to $269 billion.

This follows the release of the Australian Prudential Regulation Authority’s latest monthly banking statistics, which revealed that ANZ was the only big four bank to report negative portfolio growth over the last quarter.  

ANZ’s share of the mortgage market also slipped over 1H19, sliding from 15.8 per cent to 15.1 per cent.

Following the release of the bank’s 1H19 results, CEO Shayne Elliott told Mortgage Business that ANZ’s weakened position in the mortgage market was attributable to a “conscious” decision to revise its home lending strategy.

“It was a conscious decision,” he said. “We don’t believe that all loans are necessarily the right loans to book.”

He continued: “We think that in today’s world, when you consider risk – and I mean the broadest definition of risk, not just the credit risk but all the risks surrounding responsible lending – we don’t believe the days of targeting an absolute number in market share is appropriate anymore. 

“I am not overly concerned about the raw market share number; it’s about getting the customers you want.”

Mr Elliott went on to state that ANZ’s strategic revision has reflected the “massive shift” in the market.

“Three years ago, pretty much every customer that walked in the door, irrespective of their risk profile, [the] return on writing that loan were all pretty much the same – whether they’re an investor, owner-occupier, paying principal and interest, or interest-only, the return was the same.

“That is no longer the case. 

“Today, there’s a massive differentiation between the returns that we generate, so we just need to be selective about the customers we want. 

“Our share has grown in the areas that we wanted.”

indeed, ANZ reduced its exposure to investors over the half, with the portion of investment loans declining from 29 per cent of home loan flows to 26 per cent, while the share of loans approved to owner-occupiers increased from 69 per cent to 73 per cent.

The portion of interest-only loans also declined, from 14 per cent in 1H18 to 12 per cent.  

However, Mr Elliott conceded that the bank’s reaction to increased regulatory scrutiny in the lending environment was “clumsy”, adding that ANZ “over-shot” in its policy response.

“Some of [the mortgage contraction] was not deliberate, it was absolutely a mistake on our part, where we implemented some process changes that made it too hard to get a loan with ANZ,” he said.

“We took too long, it was too difficult, and we were asking for things [that] we didn’t really need to, so we lost a bit of share as a result. 

“That’s what we’re fixing-up; that’s what [group executive, Australia, retail and commercial banking] Mark Hand and the team are working on really hard to rectify.  

He added: “But we’re not going back to the old days of saying all market share is the same, and we want to grow as much as we can.

“I don’t think that’s the right approach.”  

The decline in ANZ’s home lending volumes partly contribute to a 5 per cent reduction in AZN’s statutory net profit after tax, which fell from $3.3 billion in 1H18 to $3.1 billion in 1H19.

[Related: ANZ suffers $1.9 billion quarterly hit to mortgage book]