ANZ NZ half-year net profit after tax drops 4% from last year's record high despite higher income and lower expenses and loan impairments more than halving

ANZ New Zealand's half-year net profit dropped 4% from last year's record high after losses from hedging and insurance policy revaluations. The bank's operating income rose, whilst operating expenses and its loan impairment charge fell.

Net profit after tax for the six months to March 31 dropped $35 million to $929 million from $964 million in the same period of the previous year.

Operating income rose $168 million, or 8%, to $2.280 billion with net interest income up $54 million, or 3%, to $1.626 billion. Operating expenses fell $7 million, or 1%, to $735 million. The bank's credit impairment charge dropped to $32 million from $70 million, which was attributed to improvements in credit quality and a benign credit environment.

ANZ NZ recorded a loss of $104 million on economic and revenue hedges used to manage interest rate and foreign exchange risk versus a profit of $13 million in the equivalent period of its previous financial year. It also took an $81 million hit on revaluation of insurance policies versus a $10 million gain in the March 2018 half-year.

During the March half-year ANZ NZ made a $59 million gain from the sale of OnePath Life NZ, and a $39 million gain from selling its 25% stake in Paymark.These sales boosted cash profit, which rose $173 million to $1.114 billion. The bank's lower expenses were attributed to the sale of OnePath, which was sold to Cigna Corporation for $700 million.

"Since 2010 we have maintained our leading market share with no change to our cost base, while investing more in digital products and services to make our business more efficient," ANZ NZ CEO David Hisco says.

ANZ NZ says customer deposits increased 7% and gross lending rose 4%.

ANZ NZ's parent, the ANZ Banking Group, posted a 22% increase in cash profit to A$3.514 billion. However when discontinued operations are excluded, the increase was 2% to A$3.564 billion. Return on equity rose 13 basis points to 12.0%. The bank's fully franked dividend was unchanged at A80 cents per share, equivalent to 71% of cash profit.

RBNZ capital proposals 'major concern'

Speaking to ANZ's BlueNotes website ANZ Group chief financial officer Michelle Jablko says the Reserve Bank of New Zealand's proposals to increase bank capital requirements is a challenge to be worked through, but it's too early to tell what the ultimate impact will be. Nonetheless in the ANZ Group press release CEO Shayne Elliott describes the RBNZ proposals as "the major concern in New Zealand." 

"The Reserve Bank of New Zealand is consulting on its proposal for increases in risk weighted assets and minimum capital ratios. The overall impact on ANZ depends on a number of factors, including the outcome of the consultation period, as well as regulatory changes underway by the Australian Prudential Regulation Authority. ANZ is in a better position to manage any change given its transformation and has a number of practical options available if circumstances require. Any changes are expected to be implemented over a five-year period," the ANZ Group says.

ANZ has estimated it would need between $6 billion and $8 billion of new capital to meet the Reserve Bank's proposed new capital requirements.

The charts below come from the ANZ Banking Group.

Here's ANZ NZ's press release.

Here's the ANZ Group press release.