ANZ National profit falls 12% as bad debt charges treble

ANZ National reported today the annual profits from its retail, business, farming and UDC divisions fell 12% to NZ$715 million after its provisions for bad debts more than trebled to NZ$278 million. Overall profits, including banking for large corporates (Institutional) fell 5% to NZ$990 million. Here are the full details below from ANZ's Australian summary and a release from ANZ National.

Net profit declined 12% due a significant increase in provisioning off an historically low base (2008: $286 million; 2007: $78 million). The second half saw the impacts of a slowing economy flowing through along with margin pressures, increased funding costs and higher provisions. Corporate and Commercial Banking, Rural, Private Banking and UDC achieved good growth in profit before provisions while the two retail divisions were in line with last year. Income grew 4% driven largely by balance sheet growth (lending up 11%, customer deposits up 9%) which was offset by margin contraction (-21 basis points). Expenses increased 4% driven by increased numbers of customer facing staff and investment in business initiatives however this was offset by strong control of discretionary expenditure and productivity initiatives. The New Zealand Businesses improved their market share during the year with gains in most business segments while also maintaining customer satisfaction levels. The performance reflected the "˜two speed' New Zealand economy, with strong performances in the rural and business segments contrasting with a weakening in household sector activity through the course of the year. Volatile international credit markets have also impacted local conditions.Mr Graham Hodges, ANZ National Bank Chief Executive Officer said: "This is a solid result in a slowing economy, and demonstrates the bank's strength and ability to withstand a challenging environment." "Despite the economic conditions, ANZ National has provided security and confidence for our customers; and we have continued to work hard to meet community expectations with responsible, sustainable banking, Mr Hodges said. The New Zealand result has been led by strong performances by the Markets business, which has benefited from volatility in the global market, and Rural Banking reflecting increased activity from strengthening commodity prices especially in the dairy sector. Corporate & Commercial has experienced strong lending growth in line with increased activity and strong customer balance sheets.UDC Finance has delivered a good performance in the context of a significant shakeout in the finance company sector."UDC stands head and shoulders above the rest of the finance company sector with its strong credit rating and performance allowing the business to distinguish itself from other troubled industry participants," said Mr Hodges. Performance in Retail Banking has been adversely impacted by slowing mortgage activity, greater competition for deposits and increased provisions in response to rising pressures on household cashflows. Throughout 2008, consumers have faced higher interest rates and increased costs of living.As has been signalled during the year, customer arrears and provisions have risen significantly but from very low levels. Individual provisions have risen to 21 basis points (or one fifth of one percent of the lending book), largely due to increasing arrears in the household and small-medium enterprise sectors. Write-offs remain relatively low at 10 basis points. The collective provision charge has increased by 10 basis points reflecting a modest weakening in credit quality (4 basis points) and a "˜cycle adjustment' charge of NZ$54 million (6 basis points) as a prudent response to the expected impact into 2009 of reduced consumer spending. Today's result reinforces the ongoing strength and stability of the Bank in what have been turbulent market conditions.The Bank has a well-diversified funding mix with a strong domestic deposit base. It was well positioned going into the current environment with a successful retail bond issue in the domestic market and a benchmark five year offshore raising in July. The liquid asset portfolio remains prudent at around NZ$8 billion at the end of September 2008. Our recently established residential mortgage-backed securitisation programme adds to our funding options and is available for use in domestic market operations conducted by the Reserve Bank of New Zealand. ANZ National maintains a very strong capital position with Tier 1 capital about twice the regulatory minimum. The AA credit rating from Standard & Poor's puts it (and its parent, Australia and New Zealand Banking Group Limited) among only 14 banking groups in the world left with a AA credit rating.