COVID crisis to spur market evolution: ANZ CEO

Following the release of ANZ’s third quarter trading update (3Q20), CEO Shayne Elliott commented on the outlook for the broader market as it grapples with the fallout from the COVID-19 pandemic.

Mr Elliott acknowledged the economic damage inflicted by social distancing restrictions aimed at curbing the spread of the virus, but said the crisis would breed new opportunities for innovation, pointing to periods of growth following previous downturns.

“[It’s] easy to get very focused on the negatives, and the negatives are devastating for so many people. But the reality is that this is the history of change and particularly in the financial sector,” he said.

“We go through these periods, sadly we go through them quite often, every seven to 10 years. We don’t always recognise it at the time and the last one of course was the GFC.”

He continued: “But what we know is that while there’s some devastating impacts on so many, and our job is to make sure we protect as many people from that change. There’s also opportunity. Some of the world’s greatest companies were founded, or really grew a lot, in times of stress.”

The ANZ CEO made reference to major global brands, including Microsoft, Apple, Uber and General Electric, which emerged in stronger positions following periods of conflict or economic disaster.

“Why? Because in times like this when there’s a lot of change happening, customers suddenly have new needs that are unmet,” he added.

“So, I think there is – and I don’t want to sound dismissive of the challenge and the devastation that this is having on so many in the community, because it really is – but there is going to be opportunity.”

Mr Elliott claimed ANZ has been pivoting its businesses to ensure it capitalises on emerging opportunities.  

“What I’m proud of at ANZ is that we have [the] capacity to do that. We have the capacity to do it because we’re a simpler, better bank,” he said.

“We’ve got stronger foundations, whether it’s financial or managerial [and] we have the ability to participate in shaping a world where people and communities thrive, which is our purpose.

“[This] will be a testing time for us in many, many ways.”

3Q20 result

In its 3Q20 trading update, ANZ posted cash earnings after tax of $1.5 billion, more than double the quarterly average over 1H20 of $707 million.

The major bank’s performance was underpinned by strong growth across its customer-facing businesses.

ANZ’s mortgage portfolio grew above system, rising by approximately $4 billion in 3Q20, from $264 billion to $268 billion, while retail and commercial deposits increased by approximately $8 billion, from $213 billion to $221 billion.

The major bank’s cash earnings result was also supported by reduction in total provisions, which fell from a COVID-induced high of $837 million in 2Q20 to $500 million.

As a result, the bank has decided to pass on a fully franked interim dividend of 25 cents per share.

“Our performance during these difficult times demonstrates the strength of our portfolio as we balance the need to support customers and our staff through this global pandemic while also providing a fair return for shareholders,” Mr Elliott said.

“Our company purpose of helping people and communities thrive has guided our response. Challenges clearly still remain; however, having moved quickly to protecting the things that matter, engaging with key stakeholders, adapting for a new world while also preparing for the future has us well placed.”

He continued: “During the quarter, we have grown home loans in Australia well above the rest of the market. We are also pleased with the strong deposit growth, demonstrating customers are taking a prudent approach in shoring up their personal finances.

“As a result of strong customer flows and underlying volatility, our markets business was up 60 per cent on the first half quarterly average, while a reduction in risk weighted assets from our international business also delivered a capital benefit to the group.”

Mortgage deferral trends

ANZ has reported that it has received approximately 130,000 mortgage deferral requests since the onset of the COVID-19 crisis, 69 per cent (90,000) of which were granted.

The bank revealed that just 7 per cent have exited deferral arrangements, taking the total of outstanding deferrals to approximately 84,000 – equating to approximately $31 billion in loans, or 11.5 per cent of its total portfolio.

Owner-occupiers represent 92 per cent of total deferrals, while 73 per cent are paying principal and interest (P&I).

The average loan size is approximately $371,000, compared with $272,000 across its total mortgage portfolio.

The average dynamic loan-to-value ratio on deferred mortgage is 68 per cent, compared with 56 per cent of its total book.

The largest proportion of deferral customers are from Victoria (32 per cent), followed by NSW (27 per cent), Queensland (18 per cent), Western Australia (14 per cent), and the remaining states and territories (9 per cent).

Mr Elliott said he’s expecting most deferral customers to resume repayments in the months ahead.  

“We think that the majority of our people on deferrals will probably get back on their feet in their own way. They need a bit of time. And we can see it in the data actually,” he told the bank’s internal media outlet.

“Many of the people who asked for a deferral did it as an insurance policy; they hadn’t actually lost their job, they didn’t have a fall in income, but they just thought it might be a safe thing to do while it was available.

“So, not everybody’s necessarily today in harm’s way”, but the chief executive acknowledged that some borrowers would face ongoing financial hardship.

He added: “On the other hand, there are some people who sadly have lost their job, or their businesses haven’t been able to operate. Now we are all hopeful that they will get their jobs back, that their businesses will get back on their feet.

“But for now, the deferral is just that; it’s a breathing space. I don’t know that you can read too much into the data. It’s too early to say.”

The ANZ CEO noted that borrowers that do not expect to resume repayments would be placed into a hardship program.

“So, I don’t think you can read too much into it, and it’s certainly not a mathematical formula to take deferrals and say they’re necessarily going to end up in defaults. There’s really literally too many moving parts.”

[Related: Westpac reports 42% drop in mortgage deferrals]