ANZ New Zealand's interim profit is up 18% to a fresh record high boosted by growth in the home loan market.
New Zealand's biggest bank posted a $166 million, or 18%, rise in net profit after tax to $1.096 billion for the six months to March. That's up from $930 million in the six months to March 31 last year. ANZ NZ's previous record half-year profit was $964 million in 2018.
Australian parent the ANZ Banking Group praised the performance of its Kiwi offshoot, and also unveiled restructure plans that could see the group split its banking activities into a separate company from its investments and innovations arm.
ANZ NZ says profit was boosted by growth in its share of the housing market, which increased 28 basis points to 30.66% from 30.38% between September and March. At March 31, ANZ NZ had $103.1 billion of home loans outstanding. That's up $7.7 billion year-on-year, and means 70% of ANZ NZ's total lending is housing lending, up from 69%.
"The business has successfully grown home loan market share and carefully navigated through significant regulatory change over the period. Spring and summer are the busiest times for the housing market, and while property values have fallen 4.1% since the November peak, they are still a good deal higher than they were a year ago," ANZ NZ CEO Antonia Watson says.
"ANZ data shows more than a third of customers are ahead on their home loan by six months or more."
ANZ NZ's profit was also boosted by a $128 million fair value gain on economic hedges versus a loss of $32 million in the March 2021 half. This includes economic hedges used to manage interest rate and foreign exchange risk.
Watson says with rising inflation and interest rates, plus increasing global uncertainty, ANZ NZ is starting to see New Zealanders tighten their belts with the current environment challenging for many small and medium sized businesses. Lending to business and institutional borrowers remained "muted" during the March half-year, increasing $900 million.
"Many of our business customers tell us that borrowing more money is often not the solution. While we do work with those seeking additional working capital support, many are using their existing cash resources or facilities," Watson says.
Both operating income and net interest income rose 6%, and operating expenses increased 8%, or by $60 million to $824 million. Half-year net interest income reached $1.761 billion, with operating income weighing in at $2.144 billion.
ANZ NZ attributed the increase in expenses to investments in regulatory compliance projects, and newly introduced compliance costs. These include implementing the Reserve Bank's outsourcing policy, and adapting to changes in the Credit Contracts and Consumer Finance Act.
Rather than credit impairments, ANZ NZ recorded a release of $20 million, down from a release of $70 million in the March half of its previous financial year.
The bank says customer deposits increased 3.4% to $107.710 billion, and net lending rose 3.8% to $139.443 billion over the half-year.
Meanwhile, the loss of ANZ's KiwiSaver default provider status saw the transfer of $513 million of KiwiSaver money to newly appointed default providers, leading the reduction of ANZ's KiwiSaver funds under management by $665 million to $18.5 billion. Overall funds under management dropped 4% to $37.4 billion. A distribution to 273,000 bondholders as part of the Bonus Bonds wind-up also contributed to the drop in funds under management.
Aussie bosses sing praises of their NZ business
Farhan Faruqui, Chief Financial Officer of the ANZ Banking Group, praised the performance of the group's NZ business.
"I think from a divisional standpoint, really pleased with the performance of our New Zealand division. It has gone from strength to strength and continues to grow and gain market share while maintaining both pricing capital and risk disciplines, which I think is really quite incredible," Faruqui says.
ANZ Group CEO Shayne Elliott was also effusive in his praise of ANZ NZ.
"New Zealand, terrific business. We're the largest bank in New Zealand, we've got a great franchise, number one in almost everything we do and that position strengthened over the period. And so again - good growth, good lending growth, good financial performance, well disciplined, risk disciplined. So insto [institutional] and New Zealand are in really good shape, And together, they're well over half of our capital as a bank," Elliott says.
ANZ Group's interim cash profit from continuing operations fell 3% to A$3.113 billion. Its return on equity dropped to 10% from 10.2%, with its dividend per share unchanged at A72 cents. The group's Common Equity Tier 1 capital ratio fell to 11.5% from 12.3%.
The ANZ Group said the net interest margin for its NZ unit rose one basis point to 2.33% for the half-year from 2.32% in the March half last year. The ANZ Group net interest margin was 1.58%, or 2.08% excluding its markets business.
ANZ Group eyes new structure
The ANZ Group says it plans to lodge a formal application with the Australian Prudential Regulation Authority (APRA), Australia's Federal Treasurer and other regulators to establish a non-operating holding company and create distinct banking and non-banking groups within the organisation.
"This is consistent with how many financial institutions are structured and will provide ANZ with greater flexibility and the potential to create additional value for shareholders over time. Following preliminary discussions, APRA has advised it has no in-principle objection to the proposed restructure. ANZ has also consulted other key Australian and New Zealand regulators and to date has not received and objections. Consultation and engagement remains ongoing," the ANZ Group says.
Should this proposed restructure proceed, a new share market listed parent holding company will be created with two wholly owned distinct subsidiary groups.
"These would include the Banking Group which would comprise the current Australia and New Zealand Banking Group Ltd and the majority of its present-day subsidiaries, and a 'Non-Banking Group', which would allow banking adjacent businesses to be developed or acquired to help bring the best new technology and non-bank services to our customers. The majority of ANZ's 1835i investments and similar holdings would move to the Non-Banking Group."
1835i is the ANZ Group's investments and innovations arm. There's more on it here and here.
There would be no impact on customers from the new structure and no change to how the banking operations are regulated, ANZ says.
"As ANZ proceeds with a formal application, a comprehensive consultation programme with shareholders, employees and other stakeholders will be undertaken. The proposal is subject to final ANZ Board approval and regulatory approvals and will require approval by the Federal Court and ANZ shareholders," ANZ says.
The links below take you to the ANZ NZ and ANZ Group releases.
43 Comments
Have fun - https://www.sedecordle.com/
No, Cat herder/Project Manager/Engineer
You are free not to use The Big Banks, there are plenty of alternatives, yet almost everybody seems to use the big Aussie banks, probably because their offerings in a very competitive marketplace are just better.
But we'll hear no end of whining from the usual suspects.
Banking has completely lost its moral compass.
Record profits while there is a so called cost of living crisis - meanwhile the bank profits from a housing bubble that is creating severe financial and social instability.
That is the people and profit of the triple-bottom-line tarred with moral issues/consequences. Far from a sustainable business framework.
Why are we the public paying for the mess now from the market intervention in 2020 - which occurred in order to keep the banks solvent?
Why is a public/state entity providing a funding for lending program to private banks, far below the market rates of interest? Just so that they make record profits for their shareholders?
The whole situation is dodgy and in many respects corrupt. Public pays, private shareholder gains.
Ah yes, you can back up the "to keep the banks solvent" reasoning I expect?
Can't see any mention of that in here : https://www.rbnz.govt.nz/news/2020/03/ocr-reduced-to-025-percent-for-ne…, but I can see this
"New Zealand’s financial system remains sound and our major financial institutions are well capitalised and liquid. The Reserve Bank is also ensuring that the banking system continues to function normally."
Absolutely, some make it sound as if it is compulsory to bank with ANZ. Anyone can buy a shareholding and apparently become a "fat cat".
I, like many Kiwisaver entities bought some shares several years ago. I paid I recall, something like $25 for each share earning a yield around 5 or 6 per cent,..great in times of low inflation, not so wonderful today, especially after I have paid tax on my dividends. The share price over recent times have fluctuated between about $25-$30, so no wonderful capital gain although I live in hope. They may be big in NZ but only third largest in Aussy, both "toy" economies subject to gobal economic fortunes.
I use a NZ bank personally, so what is the big deal? No doubt the $1 bn profit will excite our politicians who will summon up the courage to legislate against this "unfeeling monster", with the probable effect of reducing ordinary Kiwi Battler's kiwisaver returns.
I am not sure, but understand ANZ is not really an Aussie owned bank with international pension funds, etc., having major ownership.
What is going to be frustrating about the back and forth that will take place over the coming months between politicians as they argue over wealth tax, will be that their ideas sit on top of a flawed understanding of ownership and a culturally supported value extraction. This article is an example of that.
I'll Bite and explain.
At the moment the finance minister is using IRD individual data to calculate the tax paid by high worth individuals. What he's not considering is high worth individuals may have already paid the tax through other mechanisms.
ie most high worth taxpayers own companies - the company not the individual pays the tax on the profit made - the owner takes his income from the profit. So if the company made $1 Million in profit - the company will have paid $280K (28%) in tax - the remainder goes to the owner ie he takes home $720K - effectively he has still paid 28% in tax but the tax record is against the company's tax record and not the individuals tax record.
The individuals tax record is based on tax paid through PAYE, interest in the bank and PIE funds, any other tax paid would sit alongside the company/ trust/ investment funds tax records.
the only areas where a high net worth tax payer can avoid tax is in investing capital assets - as we don't have a CGT - but keeping in mind this tax avoidance applies to all taxpayers - from Mum and dad rental property owners to the 20 year old with a Sharsies account..
Thanks for the bite.
So this idea might sound a little over the top, but ill show my reasoning and you can point to me the flaws.
I relate ownership and the ability to be able to be rewarded for the value you create.
If i own a garden, and I grow potatoes in this garden. when I sell these potatoes I get 100% of what they sell for.
If i only own 50% of the garden, and someone down the road (Bob) owns the other 50%. I grow the potatoes (value creation) and half goes to me, half goes to bob. An over simplified example, but hey. Also, I am well aware of that this is how life works.
Bob, in this example, is an externality that is ‘rent seeking’ and providing less value than what he is taking. Im sure he would be using these gains to fund public goods for the greater community. If he is not, and instead he is compounding his gains, on a long enough time scale, he could own the fertaliser, the market, the potato seed company etc etc. Obviously exaggerated, but even compounding 5% over 10 years where the other party does not compound, puts Bob at a massive advantage.
In NZ the path has led us to externalise ownership of companies that should be internal. Efficiencys in these companies are compounded to cement themselves vs their rivals. This is to the detriment of those who have no choice but to use these products/services, and within the company, the employees who create the value have their compensation diluted over time.
The essential companies that we cannot opt out of without putting ourselves at a further disadvantage are: Banks, Communications, Electricity, Fuel, Building Supplies, Fishing, Insurance, Waste.
Either the ownership is concentrated into small number of nzers, or the ownership is held off shore. If it is culturally acceptable to own 12 houses and collect rent, it is culturally acceptable to own 12 companies and collect rent.
Now Ive gone a little bit off topic, as the article was talking about ANZ and ive somehow turned it into an ownership rant. But we need to build new coordination mechanisms to help us grow as a society, and ANZ is chilling and stacking cash while our politicians bicker about taxes.
I hope that half made sense Pragmatist. Im sitting keyboard warrior exam next tuesday.
Brave ANZ - great work.
NZ Banks interest payments to customers are now just 28% of interest received - down from over 70% in 2009 (and 60% in 2014). NZ Bank profits - after tax - over the last 4 quarters exceeded $6.6bn. It is literally a license to print money. Every data point you look at tells the same story... https://www.rbnz.govt.nz/statistics/s21
Don't. Just please avoid the actual data, it is unjust on a scale that makes a man swallow and clear their throat.
The government, full of leaders who are no-ones in the real world with no experience and therefore no models of appropriate profitability, are like the babies with candy.
Talking about a moral compass and all that is well and good team but completely pointless, its so irrelevant as to waste digital bandwidth. We cannot blame the fox in the hen house we must blame ourselves.
NZ Banks interest payments to customers are now just 28% of interest received - down from over 70% in 2009 (and 60% in 2014). NZ Bank profits - after tax - over the last 4 quarters exceeded $6.6bn. It is literally a license to print money. Every data point you look at tells the same story... https://www.rbnz.govt.nz/statistics/s21
Nice one Jfoe
Jfoe,
I spent most of my life in the UK. Back in the old days, all mortgage lending was done through the building societies- from the very big Halifax Abbey National etc. to the very local-Skipton, Dunfermline etc. They were rock solid-no dicing up the mortgages and selling them on- and nobody from the Chair down earned big money. They were very simple mutual businesses-no shareholders.
That is of course a lost world now-they all demutualised in the late 80s and early 90s and became banks. Under the old system, the Northern Rock debacle could not have happened.
Why did so many borrow so much when the country was on emergency interest rates? FOMO of course. Interest rates had to rise. Housing inflation alone causing spending in 2020 and 2021. Some people in the RE industry have a lot to answer for. Greed prevailed. They will not be offering to help you make your payments when interest rates hit 6per cent or more. Humans can be so cruel to each in more ways than one.
People borrow as much as they can to buy the best house in the best possible area they can - near the schools they want their kids to go to, easy access to work, near great amenities etc. So, when interest rates drop, the amount that people can afford to borrow increases, and house prices increase. The reverse being also true.
I don't think you can blame people for wanting the best house, school etc they can afford.
Got to look after those bankers…….
This story is unfolding as we speak. If I was 70% invested in the NZ housing market right now I'd be concerned. ANZ will be thinking that the house price falls won't be that bad (minus 30% is the same as the last 2 years plus 40%) & with inflation winging its way to a place near you, we'll still come out of this it alright. And they probably will. But that's not guaranteed. Nothing is guaranteed. There are a lot of small global banks, of which ANZ is just one, that may not survive what could be about to happen. If I believe half of what I read above, then the whole pack of cards could come tumbling. If house prices fall more than 30% over the next 12-18 months then ANZ will be relying on inflation & the RB to help them out. We've been here before. Or, at least I have. But then, I'm old & what I say doesn't count any more.
Let's see. The nz taxpayer borrowing money on the international markets at close to 4%. Lent to ausie banks via the funding for lending program at 1.5%. Loaned back to kiwis 5.5% and rising.
How can they not make a profit,, and why aren't New Zealander's figuratively burning plutocrats at the stake. For Gs sake you are paying for this money twice.
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