ANZ New Zealand, the country's biggest bank, has posted a 9% fall in half-year profit after a significant rise in credit impairment charges on loans.
For the six months to March 31, ANZ NZ says its net profit after tax fell $94 million, or 9%, to $1.002 billion from $1.096 billion in the six months to March 2022.
The drop came as credit impairment charges weighed in at $121 million versus a release, or write-back, of $20 million in the March half last year, which included the release of provisions raised prior to ANZ's sales of UDC and shares in Paymark. The credit impairment charge was attributed to an increase in collectively assessed credit impairments, and higher individually assessed credit impairments due to lower write-backs.
A collectively assessed provision is established after an impairment assessment on a collective basis for a group of the same type of loans where losses have occurred but aren't considered individually significant. Individually assessed credit provisions are made when there has been a deterioration in the creditworthiness of an individual or entity. A write-back , or reversal, of an impairment loss reflects an increase in the estimated service potential of an asset since the date when the impairment loss for the asset was previously recognised.
Net interest income jumps
Operating income was up $346 million, or 16%, to $2.490 billion. Net interest income, the difference between the revenue generated from a bank's interest-bearing assets such as loans and the expenses associated with paying its interest-bearing liabilities such as deposits, surged $366 million, or 21%, to $2.127 billion.
Parent the ANZ Banking Group said the net interest margin for its NZ unit was 2.67%, up 34 basis points, attributed to favourable deposit margins from a rising interest rate environment. Its cost-to-income ratio was 35.4%, down 530 basis points.
ANZ NZ's operating expenses fell $15 million, or 2%, to $809 million.
"While a rising interest rate environment contributed to the result, this was offset by intense competition in home lending, which we expect to remain a feature of the market for some time into the future," ANZ NZ CEO Antonia Watson says.
"From talking to business customers across the country, confidence remains very subdued as high interest rates and escalating costs impact business profitability against a backdrop of weakening demand."
"Given the ongoing uncertain environment, we need to remain cautious, which is reflected in the increase in credit provisions," Watson says.
"ANZ NZ recognised a credit impairment charge of $121 million, and total credit impairment provisions increased to $860 million [from $739 million]."
ANZ NZ's annual gross lending rose 4% to just over $129 billion, and its customer deposits increased slightly to $104.614 billion.
'Closely monitoring' how customers are managing
ANZ NZ says it has provided support to customers hit by floods and Cyclone Gabrielle with emergency access to more than $11 million of interest free funds, and has waived about $1.3 million in fees.
Watson says ANZ NZ is "closely monitoring" how customers are managing, especially as home loan borrowers move to higher interest rates.
"We have a team proactively contacting customers to make sure they're aware of their options to manage repayments and provide support for those who need it," she says.
"Fortunately, many of our customers took the opportunity to pay down debt while interest rates were low, and a third are ahead on their home loan by six months or more."
Customer deposits
65 Comments
Surprise - surprise, the credit impairments begin, albeit from low base. For many short sighted investors, with the backdrop of declining equity, this is when "good debt" becomes the mother of all hangovers. Ahead comes the negative loop, the expected job losses and the economic and social consequences. For the astute cashed up investor, bargains are on the horizon.
$1 billion after tax profit and the article headline says??
They are making so much profit from doing what? Lending money.. They don't make nothing.. No technology product, nothing. Just using others money to lend to others and middle man enjoying the profits.
Humans are the silliest of the species.. I guess a few intelligent ones riding the backside of a dumb lot.
They big 4 banks are so powerful they essentially have impunity to treat Kiwi's and the RBNZ as they wish. The RBNZ are toothless, the Big 4 CEO's in Australia are regularly dragged before parliamentary select committee's and the odd Royal Commission to be hedl to account. Here we are the figurative bear in the cage being milked and the average Kiwi is too stupid to realise.
Te Kooti
Not necessarily. It is my understanding (from a reasonably reliable source being someone likely to know) was that the actual reason Hisco was sacked as ANZ CEO back in 2019 was the result of an argument with Orr. John Key’s stated reasons were the generous terms of a mortgage (approved) and storage of wine - arguably part of his relocation package from Australia.
While this can be disputed, Orr in particular is known as being tough, single minded and autocratic - he is not one to roll over to in dealings with bank CEOs.
he is not one to roll over to in dealings with bank CEOs
Shame he gave them such vast swathes of free and easy profits. At this point he can be as tough as he wishes, the CEO's are sitting pretty on couches of cash and watching the poor man in front of them steam at the ears over the mess he made of the economy by handing them said cash on a platter. "Naughty Adrian, and what have you learned from all of this?"
A good profit and higher dividends good news for our many kiwisaver funds who, with other financial institutions comprise about a third of ANZ (NZ's) shareholders. Good news also in a world where the future of many banks looks decidedly dicey, that we have a solid bank here in highly indebted NZ.
I’d say that what we are seeing overseas is the future that awaits Australasian banks. We’re just 10 years behind (a big property slump will start us down the path of overseas banks that have struggled post GFC as there are no productive enterprises to lend to if the residential property ponzi falls).
When you take more in profit than you give in services rendered to society, you’re walking on thin ice.
That $1 billion should have been put to use elsewhere in the economy - such as fixing our infrastructure issues - not providing excess profit to bank shareholders who have been given special treatment by the RBNZ (Funding for Lending Program).
Anyone else think our banks receive far to much for services rendered to society, but give far too little back in return?
Define excess profit though. Shouldn't it be measured against assets or shareholder capital? From what I understand, it is much lower than the likes of Spark, F&P, Warehouse etc. Too many pundits focus on the numerator and forget the denominator, which surely is important, right?
For sure (I agree in theory) - but were these companies receiving lending directly from their regulatory body at the risk free rate so that they could then maximise profits? If you receive funding risk free, it means there is no risk premium for the lending - and as such no caution required/applied to the business that you are undertaking.
(i.e. retail banks minimised losses in 2020 through state intervention, and now in good times they're privatising the profits - watch them cry out for support again as the housing market continues to tumble and recession bites).
The corporate/state relationship right has to be about as crony as its ever been.
Indeed - banks have hardly any shareholder skin in the game.
According to the Reserve Bank, the new capital requirements mean banks will need to contribute $12 of their shareholders' money for every $100 of lending up from $8 now, with depositors and creditors providing the rest.
ANZ didn't and have never made a loss!
They sometimes are less greedy than the previous years greed!
This bullshit " we have to increase our annual profits to appease the shareholders " is just disgusting!
If we the customer take a hit so should the shareholder take a bigger hit.
Hi Shaft, why don't you buy some ANZ shares and enjoy the dividends. Of course if you have a Kiwisaver you no doubt already enjoy some ownership of ANZ.
And of course there is no compulsion to be "we the customer",... you could bank with Kiwibank or other NZ owned banks.
So, operating expenses actually fell from year-ago and half year-ago levels while the rest of the economy is suffering from high inflation.
Too bad much of the massive productivity gains from these large banks will be wire-transferred to their Aussie parents.
"The house always wins" does not hold true in NZ given the state of the housing market. It is more so "the bank lending on the house always wins".
Smoke and Mirrors
All in the eye of the beholder or is it in impairment rules?
Rob Stock on Stuff:
“ANZ posts half-year profit of more than $1 billion, up 14%”
“ANZ recorded no significant growth or decline in its loan or deposit books.
Its main profit “driver” was that the bank was able to increase its margins, earning more from every dollar it lent to households and businesses.”
”ANZ NZ recognised a credit impairment charge of $121m, and total credit impairment provisions increased to $860m.”
FYI, we focus on banks' net profit after tax rather than cash profit. Details on why feature in the two stories below;
Note, Westpac has moved away from reporting cash profit - https://www.interest.co.nz/banking/120520/tide-turning-big-banks-use-profit-metric-thats-creature-bank-managements-own
only 1 billion in 6 months -- my heart bleeds for them FFS windfall tax on the banks - based on the fact they could borrow of the NZ taxpayer at virtually 0% interest - when that simply was not needed Mr Robertson and Orr
just extracting the very expensive micky out of New Zealanders in a cost of living crisis
True. Im not an ANZ lover (I am an investor in banks though through various vehicles), but to be fair, you're being a wee bit disingenuous there -- many customers pay 0% interest, by paying it off, dont utilise overdrafts and have small amounts on variable HL.
Banks still need to hold capital on every dollar of limit, whether it is used or not (and risk weighting on CC, OD and PL is super high, given write off likelihood)
Another consideration is that ANZ only took like $3.5bn in FLP ... they have $147bn in loans per the last RBNZ summary... so there's some dilution effect in there.
That said, the RBNZ did keep a lid on savings rates by pumping cash out there.. which is the main driver for bank NIM, not their lending NIM, whch must be terrible looking at swaps and all those fancy cash incentives out there.
Helloooo 🙄 Orr or Robertson can't go after the banks because they are the meat in the economy sandwich,. Actually they are the bread and butter ss well
The banks have better fiscal control than the Government and have to earn their money. The government just take 10 - 40% + 15 % OFF YOU AND WASTE IT ON LOLLY SCRAMBLES FOR MINORITIES.
Maybe the banks should run the government and th RB but keep profits here!
Obscene profits not withstanding, the $300 million in income tax paid by ANZ seems like a good amount, however I agree with the sentiment that the Government wastes too much of it's tax take on unnecessary spending, and certainly none of it will go to those struggling with higher mortgage rates, as home owners are very unlikely to be on the benefit.
I would hate to be the bearer of bad news, but I suspect that in the next year we will see a spike in mortgagee sales as banks live up to the expectation that they don't really look after their customers.
'Well, you can't go without a bank so what are you gonna do?'
You can't even go to a bank in many place anymore either...as the banks are either gone or on limit hours/days.
And for the elderly, for whom online banking and call helpdesks are a real struggle (they want to go to the bank and have face to face), the quality of the service provided has dropped substantially for them in recent history while the bankers run up big profits (for providing less service).
I walked into two different bank offices (admittedly none of the Big Five) the other month to try and open a bank account. The teller looked confused at having someone walk in, and when I explained what I wanted, got told I would have to make an appointment which could be a few weeks wait. Or, I could do it online. It was an identical experience at both banks.
Yip - I tried to help an elderly relative open a bank account with kiwibank. Still hasn't happened after 3 phones and a drive to the city where the branch is.
Too confusing...they just want to open an account but for whatever reason the current system is too difficult if you're 70+.
How things have changed.
Decades back, you could walk into a branch of any bank with a large hessian bag of notes in your hands and say "I want to open a savings account please" and the teller would say "Sure. Name Please?" and a reply of "Bob Brown" was enough for them to reply "Thanks, Bob. Now would you like to make a deposit today into your new account?" and the bag was pushed across the counter....
(There was no AML regulation then, and little capacity to enforce it anyway)
Same experience. We couldn’t find a way to open a bank account to deposit a large sum of money into (from the sale of our home …. While waiting for the market to correct). No bank was able to help, they said if we wanted a loan they had plenty of loan managers who could talk to us. While we were in one branch the large - and a little bit intimidating - agri-team strode out into the office - four strapping, clean cut young men all identically dressed in check shirts, moleskins and RM Williams boots - off for the daily home visits to their customers. It’s all about the lending now for banks.
Banking is like a utility, but it's run by private businesses that make insane profits. The sooner we stop using them, the better.
I'm confident in the next decade they will see a large drop in AUM. Younger gens are switching on to poor rates, inflation, predatory fees and guess what, something like crypto offers an out for that.
Decentralize banking services and you have borrowing, lending without a predatory middleman hurting everyone.
Publicly owned banking is must if we are too survive.
China has been modernizing for many decades, and has become the world’s most successful economy. A key to its modernization has been keeping money as a public utility – in the government’s hands, not privatizing money and banking. That is what has enabled the central bank to simply write down debts when they cannot be paid, instead of forcing companies into bankruptcy. Michael Hudson
The banks make their money from selling us Debt.
If we stop taking it on; repay it even, then those numbers will change pretty quickly.
But do we have the collective courage or capacity to stop/reduce our borrowing? (The answer, obviously, is No. Unless the price of whatever-it-is that we want to buy, falls.)
Banks don't take deposits and they never lend money. They are in the business of purchasing securities. When one gets a bank loan, the loan contract is a promissory note. The bank purchases that contract from the borrower. Now the bank owes the borrower money and it creates a record of the money it owes, which we call deposits - source.
With the backdrop of a cost of living crisis, one cannot deny these billions in bank profits are unpalatable. Its worth noting that in the coming downturn, lets see how socially responsible the banks are when/if these billions in profits transition to billions in losses. For starters, the inhouse Spin Doctors serving up "Socially Responsible" media tidbits will be fired to reduce costs.
The four most dangerous words in investing are "it’s different this time". - Sir John Templeton
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