Net interest margins at the country's biggest bank appear to have peaked due to competition for deposits and in business lending, ANZ Banking Group CEO Mike Smith says.
Smith made the comment in the ANZ group's quarterly trading update, released today. He also said ANZ NZ, including the ANZ and National banks, UDC Finance and fund manager OnePath, had seen market share gains, especially in retail banking whilst costs were continuing to be tightly controlled. For the nine months to June 30, Smith said the ANZ group's New Zealand operations recorded a 1.4% rise in lending and a nearly five times stronger 6.9% increase in deposits.
"The (New Zealand) business' focus on business simplification, including the planned move to a single IT platform, has positively impacted staff engagement, customer satisfaction and cost to income levels," Smith said. "As flagged at the half year margins appear to have peaked, impacted by competition for deposits and in business lending."
With its half-year results announcement in May - covering the six months to March 31 - the ANZ group said its "New Zealand businesses" net interest margin rose 12 basis points to 2.65% from 2.53% in the six months to September 30 last year, and a "New Zealand geography" net interest margin of 2.50% was up 10 basis points. At the time Smith told interest.co.nz New Zealand margins had probably plateaued.
The group is currently moving its banking staff in New Zealand onto one information technology (IT) platform, National Bank's Systematics core banking system, nine years after the ANZ group bought National Bank from Lloyds TSB in 2003. Running behind schedule, the project was originally due for completion by late 2011. ANZ's now targeting completion by the end of 2012 at a cost of at least NZ$221 million.
Meanwhile, ANZ Group unaudited underlying profit for the nine months to June 30 rose 5.5% to A$4.5 billion with the Australia, New Zealand, and International and Institutional Banking units all recording rising income with the Wealth division's down.
Executive salary freeze staying in place
In a conference call with analysts' Smith said ANZ was seeing soft consumer spending in New Zealand and a slow economic recovery. However, he said there were signs of improving business confidence and the group's New Zealand business simplification programme was on track.
"In New Zealand we've seen revenue growth across each of our main businesses, (and) market share in retail has grown," Smith said.
The ANZ group has completed its wholesale fund raising for the 2012 financial year, and would again look to raise about A$20 billion next year.
"We also recognise that as senior executives we have to demonstrate that constraining costs is everybody's business and for many executives at ANZ, including myself, that means salaries will remain fixed in 2013 just as they were this year," Smith said without touching on bonuses.
He saw reiterated his view stated earlier this year that the world is making the necessary adjustments to deal with a "massive debt burden."
"The global economy is continuing a multi-year work out phase following the global financial crisis (GFC) where countries, businesses and consumers are all making adjustments that are necessary to deal with the excess debt. Obviously that's most acute in Europe but the situation there also has flow on effects for the world economy," said Smith.
"We're not running the business on a hope that the subdued lending environment will end any time soon. We aren't going to see the pre-GFC credit growth return any time in the near future and we are continuing to adapt the business to this environment."
(Update adds Mike Smith comments from analyst conference call).