On Wednesday (4 May), Australia and New Zealand Banking Group Limited (ANZ) released its results for the first half of its financial year 2022 (1H2022), ended 31 March 2022.
ANZ loan book stabilises
The results showed that, over the half, the bank saw $35 billion in Australian home loan flows, with its Australian mortgage book staying flat after rising marginally from $278.0 billion in September 2021 to $278.4 billion by March 2022.
While it was down slightly on March 2021, when the loan balance and lending flows totalled $281 billion, the half-year results showed the bank had managed to halt the run-off that it had been experiencing in recent years as a result of long turnaround times during the first two years of the pandemic.
ANZ saw more than 82,000 home loan accounts opened in the half, up 18,000 on the same period in the prior year (but down 10,000 on the previous six-month period).
The average loan size also increased (in tandem with escalating house prices over the period), with the average new loan written by the bank in 1H22 being $458,000 – up $58,000 on the same period last year.
However, its market share dropped in the half (based on APRA stats), falling to 13.8 per cent of market (down from 14.4 per cent at the same time last year).
Noting it was a “tougher environment for us at ANZ and for the industry” in a “very, very competitive period of time”, the major bank welcomed the return to balance, after it had entered the half with its home loan balance sheet shrinking.
Borrowers ready for a rate rise
Given the rising interest rate environment, the bank was asked by both investors and members of the media how it expected borrowers to manage mortgage repayments.
The major bank had announced that it would be increasing standard variable interest rates for Australian home and residential investment loans by 0.25 per cent per annum (p.a.), bringing the index rate to 4.64 per cent p.a. for those making principal and interest (P&I) repayments and 5.19 per cent p.a. for those on interest-only (IO) repayments.
It estimated the 25-bp change will increase monthly repayments by $57 on an average home loan of $450,000 for an owner-occupier paying P&I.
In a bluenotes interview, ANZ chief executive Shayne Elliott commented: “I think there’s no question we are entering into a very, very different operating environment. In fact, perhaps the most different we’ve seen in almost 30 years...
“And now we’re looking at a period that it seems likely, globally, interest rates will be on the rise for a period. That’s quite new for a lot of our customers. Many of our customers have never lived through any of that, whether they’re a small business or they’re a homeowner. So, things are going to be different, right?
“Now people are wise and what they’ve done through this period, they’ve noted that there’s more uncertainty, so they’ve done what they should do. They’ve shored up their own balance sheets. So, they’ve saved more.
“In fact, savings – household savings and small business savings – are at record levels. People have put money aside for a rainy day because of that uncertainty. They’ve paid down their most expensive debt. Credit card balances are way down. That’s a good thing in terms of people’s financial security. And so, they’re getting prepared for that future, whatever it may look like.”
While Mr Elliott said that rising rates would “hurt some people” and “take money out of people’s pockets”, he added that, at this point, “people are well prepared for it”.
“And it is uncertain, but I think the bank’s balance sheet in particular is in really good shape to be able to deal with it and to help people through this next phase of transition,” Mr Elliott said.
According to ANZ’s results pack, around 68 per cent of its mortgage portfolio is ahead of repayments (based on redraw and offset), however this is down from 76 per cent last year and 72 per cent as at 1H20.
Approximately a third of all ANZ mortgagors are two or more years ahead of their repayment schedule, according to ANZ, with 30 per cent being “on time”.
In addition, a growing proportion of ANZ’s loan book now comprises fixed-rate loans – which won’t be affected by rate rises just yet. More than a third (35 per cent) of the Australian banks’ entire portfolio are on fixed-rate loans. This proportion was up from 27 per cent in 1H21 and just 15 per cent in 1H120.
Moreover, two-fifths of all new loans coming into the bank were fixed in 1H22, the same proportion as 1H21.
Following the RBA’s rate increase on Wednesday (4 May), the bank announced it would be passing on the full 25-bp increase to borrowers from next Friday (13 May).
According to Mr Elliott, this would provide adequate time for borrowers to prepare.
In a media briefing, the ANZ CEO highlighted that the majority of borrowers ahead of their repayment schedule were those who had taken out a loan several years ago, when rates were higher, and had kept their repayments the same.
However, he added that even the most vulnerable borrowers (those who had taken out a loan when interest rates were at their record-low levels) would be able to “absorb that fairly comfortably”, as the bank had already been servicing new borrowers with a 3 per cent buffer.
He continued: “It’s really about people who will have a double hit; their home will go up and they suffer some other impact… maybe losing their job, or less hours, family breakdown, an illness. .. I don’t want to be dismissing it because it’s really dreadful but the reality is that probably, for quite a small part of the population, there will be an impact. There will be those who find it just too much.
“But let’s not forget we’re starting from an amazingly benign period. The total number of people in our book today who are behind on their home loan is 0.7 per cent. Now normally that’s about 1 per cent. So it’s dreadful for those people who are struggling but... doubtful debts are at historic lows (and I don’t use that word lightly); they have never been lower (certainly in any sort of recorded history).
“There are less people with a home loan who are in trouble. They are less businesses in trouble, and certainly – losses and provision for future losses – are also extraordinarily low across the banking system and in particular at ANZ, because of the work we’ve done to de-risk our business. We’ve been more cautious than most.”
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.