ANZ shows ‘extraordinary’ home loan growth, but spooks market on costs
ANZ Bank has regained its place as the country’s third-largest mortgage lender but chief executive Shayne Elliott says the bank is still failing to process applications fast enough, pledging to invest more in technology.
The prospect of rising spending sent its shares lower, with the stock down 2 per cent at the open to a two-week low of $28.22, making the lender the biggest drag on the Australian sharemarket in early trade.
“Even though they’ve done well on the costs, the costs year-on-year will be up 1 to 2 per cent, which implies a 6 to 7 per cent increase in the second half,” said Jefferies managing director Brian Johnson. “That’s scary.”
ANZ leapfrogged the National Australia Bank in total home loans after it added 92,000 new accounts worth $281 billion in Australia and 42,000 in New Zealand worth $90 billion over the six months to March 31.
The home loan growth contributed to the bank’s $2.99 billion cash profit, up 113 per cent from the same time last year, and the board’s decision to pay shareholders a 70 cents per share interim dividend, exceeding analysts forecasts.
ANZ’s growing profits were boosted by the move to reduce its provision for bad loans by $491 million, a stark contrast from the same period last year when this provision was increased by $1.7 billion. ANZ’s total reserve for bad loans remains at $4.3 billion in the event economic conditions deteriorate.
Mr Elliott said growth in demand for home loans was “extraordinary”, but the bank needed to further invest in automation to improve processing times for new customers.
“The challenges remain in Australia with home loan turnaround times,” Mr Elliott said. “While we almost doubled our assessment capacity, the new business we attracted regularly exceeded capacity.
“That means our assessment services levels in recent times have not been where we needed them to be. We know we need to improve and we’re investing in all stages of our processes.”
However, Mr Elliott warned demand for new mortgages would not be sustained as population growth continues to slow while borders remain shut due to COVID-19.
ANZ was the first bank to suspend its half-year dividend last year as the prudential regulator urged caution while the country braced for the economic impact of the pandemic. Now the Melbourne-based bank is able to pay a dividend twice the size of its October yield and on the top end of the 63 cents to 70 cents predicted by analysts.
Mr Elliott said while the economy was showing signs of improvement, supported by government policy, he would caution against complacency and warned of “fresh obstacles” ahead.
“This result shows us we have managed the business well during a difficult period,” he said. “There is still significant uncertainty. You only need to look at how the pandemic is playing out overseas – as well as recent lockdowns – to realise how quickly the situation can escalate.”
The bank’s loan deferral policy for customers affected by COVID-19 has ended, with 94 per cent of mortgage owners and 90 per cent of business owners now making payments again. Around 2 per cent of home owners and 4 per cent of business owners have been transferred to hardship, with the balance opting to restructure their loans.
ANZ reported lower revenues in its institutional business, with $224 billion in customer deposits compared to $259 billion the same time last year. However, institutional bank boss Mark Whelan said he was bracing for a busy period of mergers and acquisitions in the second half of the year.
“The pipeline looks really strong,” he said. “The M&A pipeline is probably the strongest I’ve seen it in five to six years. There are a number of transactions occurring there, we want to be part of that.”
Evans and Partners analyst Matt Wilson said ANZ’s profits were 5 per cent higher than expected, with the bank in a strong place both financially and operationally.
“The work to digitise core processes and platforms continues at pace and this will be more visible to customers towards the end of the year,” Mr Wilson said.
ANZ shares were down 57 cents at $28.26 as of 1:11pm on Wednesday.
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Charlotte is a reporter for The Age.
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