ANZ NZ December quarter net profit after tax surges 60% to NZ$415 mln

ANZ New Zealand, which operates the ANZ and National banks, fund manager OnePath and UDC Finance, says profit in the December quarter surged 60% thanks to gains on derivatives, cost cutting and profit at its retail operations jumping 53%.

ANZ says net profit after tax rose NZ$155 million, or 60%, in the three months to December 31, 2011 to NZ$415 million from NZ$260 million in the same period of the previous year. The bank said operating income rose NZ$71 million, or 8%, to NZ$914 million and operating expenses fell NZ$2 million, or 1%, to NZ$386 million. ANZ's profit also benefited from fair value gains on derivatives with a NZ$104 million swing year-on-year.

Profit at the group's retail operations jumped NZ$40 million, or 53% to NZ$116 million. ANZ, along with its major bank rivals, has seen profit bolstered by home loan customers switching from fixed-term loans to more lucrative floating mortgages.

Banks do better out of floating, or variable, mortgages because the margin between the variable rate and short end of the yield curve, such as three month bank bills, is higher than the margin between swap rates and fixed rate mortgages. According to the most recent Reserve Bank figures, 61% of the country's home loans by value are floating, a record high since Reserve Bank records began in 1998.

This switch has been boosting bank net interest margins. In the year to September 30, 2011, ANZ NZ's net interest margins rose 11 basis points to 2.38%, and 5 basis points in the second half-year from first-half to 2.40%. However, at parent ANZ Banking Group's recent first quarter trading update, CEO Mike Smith said ANZ NZ's margins were unlikely to rise further because of stiff competition among the banks for deposits.

In the December quarter, ANZ NZ's net interest income rose NZ$35 million, or 5%, to NZ$679 million. Term deposits fell NZ$850 million to NZ$32.9 billion. Gross loans contracted by NZ$104 million over the quarter to NZ$94.823 billion.

“During the quarter lending volumes remained relatively flat as businesses continued to deleverage and retail customers increased deposits rather than taking on new debt," ANZ NZ CEO David Hisco said. "We have continued to see customers moving from fixed to variable-rate mortgages."

“There are, however, positive signs for the economy. Retail sales were buoyed by the Rugby World Cup, and there was further encouraging news in house sales and primary production," added Hisco. "However, global economic uncertainty, ongoing debt reduction and the high currency continue to dampen confidence among consumers and businesses."

The bank said its December quarter provision for credit impairment rose NZ$13 million, or 41%, to NZ$45 million. Nonetheless Hisco said credit quality continued to improve.

"Individually impaired and past due loans are trending lower but there is still some uncertainty over the medium-term impacts of the Christchurch earthquakes."

“Despite pressures on the New Zealand economy, we remain positive about the outlook," said Hisco.

"ANZ’s strong domestic focus, super regional strategy and commitment to high levels of service positions us well to support our customers through the current uncertain global environment.”

The group's underlying profit, which adjusts reported profit to exclude non-cash and significant items, rose NZ$51 million, or 17%, to NZ$351 million for the quarter.

See ANZ's press release here and its General Disclosure Statement for the December quarter here.