ANZ suspends dividend as profits tumble 60 per cent

Chief executive Shayne Elliott said these were “probably the most extraordinary times in a generation,” but stressed the board was not cancelling the dividend, and it would update shareholders on the issue in August.

ANZ shares opened 0.8 per cent lower at $16.53 while the broader ASX 200 climbed 1 per cent, buyoed by a rally in overseas markets overnight.

Deferring a decision on the 2020 interim dividend is prudent given the present economic uncertainty and that making a decision at this time would not have been appropriate.

ANZ Chairman David Gonski

The dividend suspension stands in contrast to National Australia Bank, which on Monday slashed its interim dividend to 30¢ per share as it also announced plans to raise $3.5 billion from investors.

ANZ’s half-year results showed the bank’s cash profit on a continuing basis fell 60 per cent to $1.4 billion as the lender took a $1 billion collective provision for the deteriorating economic conditions. There was also a $815 million impairment of an investment in “Asian associates” due mainly to the impact of COVID-19.

Return on equity, a key gauge of profitability, plunged to 4.7 per cent, down from 12.7 per cent, as the bank’s bottom line was hit by sharply higher charges for likely bad debts.

As well as the $1 billion provision related to COVID-19, ANZ’s individually assessed provisions for bad loans also rose by $228 million, while profit margins contracted.

Its common equity tier 1 (CET1) capital, a measure of its financial strength, fell 73 basis points to 10.8 per cent of risk-weighted assets.

Citi analyst Brendan Sproules the bank’s capital position was much weaker than expected, but this was driven by the need to set aside capital for strong lending growth in its institutional business. He said this need for capital may have forced the board’s hand on the dividend.

“With lending growth potentially accelerating in [the second half of the financial year], the board were seemingly unwilling to pay the dividend and risk raising capital so as to fund lending,” Mr Sproules said.

UBS analyst Jonathan Mott said the dividend deferral was “prudent,” and the market was likely to focus on the bank’s weaker-than-expected capital position.

Banks have offered customers six-month loan repayment holidays in response to the pandemic, and ANZ said 14 per cent of its home loan portfolio, or 105,000 clients, had asked for assistance. It said 15 per cent of its commercial customers had also been given repayment deferrals.

Mr Elliott said it was hard to predict the depth of the economic crisis, but the bank was being “extremely conservative” and it was prepared for a “fairly grim outlook”. Even so, he praised how Australia and New Zealand’s governments had responded to the virus outbreak.

“The swift action from governments in Australia and New Zealand, as well as the healthy state of corporate balance sheets going into the crisis, has both countries well placed to not only manage the health aspects but also lessen the economic impact,” he said.

ANZ said it would try to lift productivity, with its budget for pay rises “significantly reduced” and focused outside senior management; variable pay would be “materially” lower; and staff had been asked to draw down on leave balances.