The fourth-largest lender in Australia, ANZ (ANZ.AX), reported on Monday that record-breaking annual profit was achieved due to strong demand for its institutional banking services, but that its margin was flattened by an aggressive push to sell more mortgages, which caused its shares to decline.
A payments platform for institutional payments that handles some of the largest cross-border transactions globally has helped ANZ as Australia’s banks shift their focus away from mortgages, which have always been their primary source of profits and have encouraged competition due to a surge in interest rates.
The Melbourne-listed company’s overall profit grew 14% to A$7.4 billion ($4.7 billion) in the year ending in September, narrowly missing a Visible Alpha consensus forecast of A$7.56 billion. This was fueled by a 53% increase in net profit from the bank’s institutional unit, which overtook its retail unit in dollar value.
While the bank’s retail division has been the only one of Australia’s “big four” lenders that has kept offering cash handouts to entice mortgage customers looking for a better deal, analysts are concerned about the bank’s retail division’s profit margin contracting significantly quicker than anticipated.
ANZ’s net interest margin (NIM), which is the interest earned on loans less the interest paid to deposit holders, increased in the institutional division but the bank’s overall NIM fell 10 basis points to 1.65% in the six months ending in September, which is more than the NIMs released this month by competitors Westpac (WBC.AX) and National Australia Bank (NAB.AX).
By midsession, ANZ shares had dropped 2.7%, outperforming a 0.2% decline in the market as a whole (.AXJO) due to concerns about the bank’s potential to sacrifice profitability in order to increase mortgage volume, which had been declining in recent years.
Based on a client note from UBS analysts, the retail banking result “reflects the cost of ANZ growing above market during a period of heightened competition and possibly irrational pricing, notably in mortgages.” The decline in retail banking margins, according to Barrenjoey analysts, “highlights further pain to come”.
CEO of ANZ Shayne Elliott invalidated claims made by other banks that they were purposefully slowing mortgage growth while competition reduced profits, and he questioned claims made by others that they were forgoing margin in order to grow mortgages faster than the market.
During an interaction with journalists, he stated, “The fact that others have stepped back from the market: I think there’s a lot of people rationalizing their loss of share. That’s for them to answer, not me. All I know is we’ve been winning more customers than we have historically.” ANZ increased its final dividend from 74 cents to 94 Australian cents per share, a year ago.
- Published By Team Genuine Reporter