SYDNEY: Australia and New Zealand Banking Group reported a 23 percent rise in first-half underlying profit to a record, as bad-debt charges fell, but warned of slow lending growth ahead as businesses avoid borrowing and households focus on savings, Reuters reported on Tuesday, May 3.
Australia's fourth biggest lender, which aims to become a pan-Asian bank like HSBC and Standard Chartered , said the transition to commodities focussed economy will hurt traditional industries while seven interest rate increases since late 2009 muzzle the mortgage market.
"The results show some robustness in a difficult trading period. Banks are now in a good position, though they need to get credit growth going," said David Liu, head of research at ATI Funds Management, which owns ATI shares.
ANZ shares eased 1.5 percent in early trade, underperforming a 0.9 percent drop in the broader market, as investors focused on waning credit growth and pressure on margins, the key challenges for the sector.
The bank reported a 2 percent rise in group lending growth and 3 percent increase in its main Australian market, well below the 10 percent historical average for Australian banks.
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"I don't think lending growth will recover to pre-crisis levels. We are in a new normal," Chief Executive Michael Smith, the former Asian head of HSBC, told reporters on Tuesday.
"Parts of the Australian economy have hit a soft spot with consumers and businesses becoming more conservative."
Underlying profit in the six months to March 2011 rose to A$2.82 billion from A$2.3 billion a year ago to come in line with the consensus forecast of A$2.85 billion.
Underlying profit strips off one-offs and investment gains and losses.
Bigger rivals Westpac Banking Corp and National Australia Bank are also expected to report record profits later in the week. Commonwealth Bank of Australia follows a June ending year.
''
CREDIT GROWTH WOES
Despite expectations for record profits, the task ahead for Australian banks is to manage margins and find avenues for growth in the wake of a fall in loan demand, higher funding costs and regulatory challenges.
ANZ, which has targeted Asia for growth, said mortgages grew at 4 percent or 1.2 times the system rate, a far cry from the double digit growth seen before the global financial crisis and 7 to 8 percent seen in recent times.
"The operating environment is continuing to present challenges. Parts of the Australian economy have hit a flat spot with consumers and businesses becoming more conservative after the financial crisis," Smith said.
Smith, the architect of ANZ's Asian strategy, has set a target of reaching 25 to 30 percent of profits from the region by 2017 from 14 percent now.
Moody's Investors Service said on Monday local banks' borrowing overseas was one source of risk for the top rating for Australia's government debt.
But rising savings among Australian households is helping banks raise more deposits, which helped the bank raise deposits 7 percent in the first half.
With rapid deposit growth, ANZ added it expected its annual term debt issuance to be around the lower end of its A$20 billion to A$25 billion range.
Australia's banks are facing a political backlash for raising rates faster than the central bank in November and a senate banking inquiry is expected to table its report on Friday on bank competition.
ANZ said net interest margin, a key measure of profitability, rose 2 basis points on year to 2.47 percent. It however fell 3 basis points over the preceding half. Margins excluding global markets climbed to 2.81 percent.
Net interest margin got a boost from the bank's move to raise mortgage rate by 39 basis points in November, higher than the 25 basis points move by the central bank.
Tier I Capital, an indicator of a banks ability to absorb losses, was at 10.5 percent.
Banks may also be forced to adopt new global bank and liquidity rules faster by the local prudential regulator.
Under stricter Basel III rules, expected to come into effect by 2013, the core Tier I capital would be 9.5 percent the bank said. Australian banks are expected by analysts to hold between 8 and 9 percent Tier I capital.
Shares in the ANZ have risen 4.1 percent so far in the year lagging a 15 percent rise for NAB, 12 percent for Westpac, 5.9 percent for CBA but beating the 1.7 percent rise for the broader index. - Reuters
Australia's fourth biggest lender, which aims to become a pan-Asian bank like HSBC and Standard Chartered , said the transition to commodities focussed economy will hurt traditional industries while seven interest rate increases since late 2009 muzzle the mortgage market.
"The results show some robustness in a difficult trading period. Banks are now in a good position, though they need to get credit growth going," said David Liu, head of research at ATI Funds Management, which owns ATI shares.
ANZ shares eased 1.5 percent in early trade, underperforming a 0.9 percent drop in the broader market, as investors focused on waning credit growth and pressure on margins, the key challenges for the sector.
The bank reported a 2 percent rise in group lending growth and 3 percent increase in its main Australian market, well below the 10 percent historical average for Australian banks.
''
"I don't think lending growth will recover to pre-crisis levels. We are in a new normal," Chief Executive Michael Smith, the former Asian head of HSBC, told reporters on Tuesday.
"Parts of the Australian economy have hit a soft spot with consumers and businesses becoming more conservative."
Underlying profit in the six months to March 2011 rose to A$2.82 billion from A$2.3 billion a year ago to come in line with the consensus forecast of A$2.85 billion.
Underlying profit strips off one-offs and investment gains and losses.
Bigger rivals Westpac Banking Corp and National Australia Bank are also expected to report record profits later in the week. Commonwealth Bank of Australia follows a June ending year.
''
CREDIT GROWTH WOES
Despite expectations for record profits, the task ahead for Australian banks is to manage margins and find avenues for growth in the wake of a fall in loan demand, higher funding costs and regulatory challenges.
ANZ, which has targeted Asia for growth, said mortgages grew at 4 percent or 1.2 times the system rate, a far cry from the double digit growth seen before the global financial crisis and 7 to 8 percent seen in recent times.
"The operating environment is continuing to present challenges. Parts of the Australian economy have hit a flat spot with consumers and businesses becoming more conservative after the financial crisis," Smith said.
Smith, the architect of ANZ's Asian strategy, has set a target of reaching 25 to 30 percent of profits from the region by 2017 from 14 percent now.
Moody's Investors Service said on Monday local banks' borrowing overseas was one source of risk for the top rating for Australia's government debt.
But rising savings among Australian households is helping banks raise more deposits, which helped the bank raise deposits 7 percent in the first half.
With rapid deposit growth, ANZ added it expected its annual term debt issuance to be around the lower end of its A$20 billion to A$25 billion range.
Australia's banks are facing a political backlash for raising rates faster than the central bank in November and a senate banking inquiry is expected to table its report on Friday on bank competition.
ANZ said net interest margin, a key measure of profitability, rose 2 basis points on year to 2.47 percent. It however fell 3 basis points over the preceding half. Margins excluding global markets climbed to 2.81 percent.
Net interest margin got a boost from the bank's move to raise mortgage rate by 39 basis points in November, higher than the 25 basis points move by the central bank.
Tier I Capital, an indicator of a banks ability to absorb losses, was at 10.5 percent.
Banks may also be forced to adopt new global bank and liquidity rules faster by the local prudential regulator.
Under stricter Basel III rules, expected to come into effect by 2013, the core Tier I capital would be 9.5 percent the bank said. Australian banks are expected by analysts to hold between 8 and 9 percent Tier I capital.
Shares in the ANZ have risen 4.1 percent so far in the year lagging a 15 percent rise for NAB, 12 percent for Westpac, 5.9 percent for CBA but beating the 1.7 percent rise for the broader index. - Reuters
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