Big falls in impaired loans and expenses help lift ANZ's cash profit

ANZ New Zealand has posted a 12% rise in annual cash profit helped by a big drop in provisions for impaired loans and falling operating expenses.

The country's biggest bank said cash profit after tax rose $151 million, or 12%, to $1.436 billion in the year to September 30. It provided a $1.285 billion cash profit figure for the previous year, although back then the bank reported a different profit measure, underlying earnings, which came in at $1.368 billion for the year to September 30, 2012.

In the year to September 30 this year, ANZ NZ's provision for credit impairments tumbled $129 million, or 66%, to $65 million. The bank's operating expenses were also down, cut $232 million, or 13%, to $1.493 billion in the first full year since the phase out of the National Bank brand was announced in September 2012. The ANZ and National banks were also joined on a single IT platform a year ago.

ANZ NZ's statutory profit, or net profit after tax, rose $107 million, or 8%, to a record annual high of $1.372 billion from $1.265 billion last year. It's the third straight year the bank has posted record annual net profit after tax.

Income falls; Net interest margins down 14 basis points

The reductions in impairments and lower expenses offset reduced income. ANZ's net interest income fell $68 million, or 3%, to $2.641 billion, and total operating income fell $110 million, or 3%, to $3.509 billion.

Meanwhile, the bank said lending grew 4% driven by above market increase in mortgages, and customer deposits increased 7%. Australian parent ANZ Banking Group said its NZ division grew net loans and advances by 4% to NZ$88.041 billion in the year to September 30, slightly below 5% growth in customer deposits to NZ$49.644 billion.

ANZ NZ CEO David Hisco said in a statement that a year after the bank created "the new ANZ" its customers were enjoying better products and services.

“Our business performance has been built on simplifying our products, improving processes and systems and delivering a better banking experience for customers. We have concentrated investment on our brand, sales training, branch coverage and digital capability," said Hisco.

“As well as delivering productivity gains, this investment has driven market share increases in mortgages and credit cards and strong growth in small business banking, while maintaining high customer satisfaction,” Hisco said.

The bank now has a presence in eight more communities across New Zealand, he added, but has also reduced its branch costs by 7%.

The ANZ Banking Group said net impaired assets at its New Zealand division fell NZ$406 million, or 41%, to NZ$573 million.

ANZ said the 14 basis points drop in net interest margins was due to strong lending competition, customers preferring lower margin fixed rate loans (as opposed to floating rate loans), and higher year-on-year wholesale funding costs, although this was partly offset by improved term deposit margins. The margin held steady at 2.49% through the second-half of the financial year.

Hisco said the 817, or 10%, drop in full time staff to 7,400 included about 500 contractors who worked on the ANZ-National Bank integration project who left when it was finished. There were also departures from head office once the merger was completed, and a "sinking lid" policy on frontline staff meaning those who depart aren't necessarily replaced.

Profit for big three rivals also strong

In August this year ANZ's rival ASB posted record annual profit for the third straight year with net profit after tax up 3% to $705 million.

Both BNZ and Westpac NZ also look well placed to grow annual profit. BNZ recorded net profit after tax of $536 million for the nine months to June 30, just $44 million shy of $580 million it made in its full 2012 year. And Westpac NZ posted net profit after tax of $465 million for the nine months to June 30, $148 million below 2012's $613 million.

June quarter disclosure from Westpac showed it cut both operating expenses and loan impairments as quarterly net profit after tax rose 2%. BNZ also recorded a drop in impairments, but grew operating income by 18%, which outpaced a 5% rise in operating expenses.

BNZ and its parent the National Australia Bank will report annual results this Thursday, October 31, and the Westpac group next Monday, November 4. ASB has a June 30 balance date and the other three Australian owned banks a September 30 one.

'More gas in the tank'

Meanwhile, ANZ NZ's Australian parent, the ANZ Banking Group, posted an 11% rise in annual cash profit to A$6.5 billion, roughly what analysts had expected. Its return on equity rose 20 basis points to 15.3%. It'll pay a fully franked final dividend of A91 cents per share, taking distributions for the 2013 financial year to A$1.64 per share, an increase of 13%.

Group CEO Mike Smith described the results as a strong performance, the result of a "distinctive" long-term strategy focused on domestic growth and targeted Asian expansion.

"This consistency and operational discipline are producing better outcomes for our customers and for our shareholders," said Smith. "Importantly, the long-term nature of what we are building at ANZ means there is still more gas in the tank."

Smith's "super regional" strategy recently came under question from analysts at JP Morgan, which his comments appear to be countering.

(ANZ NZ uses NZ geography numbers in its financial results, as opposed to its Australian parent which reports its NZ division numbers. An earlier version of this story was based on the NZ division numbers, which were released first to the Australian Securities Exchange. This story now largely focuses on the NZ Geography numbers).

See ANZ NZ's press release here, see the ANZ Group's press release here and see the Group's 134 page results release here.