ANZ Group CEO Mike Smith says solid NZ margin growth has plateaued, but should hold through second-half of financial year

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By Gareth Vaughan

ANZ Banking Group CEO Mike Smith says he expects the group's New Zealand net interest margins to hold their solid first half-year rise through the second-half of the financial year.

ANZ released its interim results yesterday, for the six months to March 31. These saw the group's New Zealand operations, including the ANZ and National banks, UDC Finance and fund manager OnePath, deliver record half-year profit on both an underlying and statutory (net profit after tax) basis. The underlying profit, which excludes non-core items) was up 13% to NZ$684 million versus the first-half of the previous financial year, and net profit after tax rose 29% to NZ$615 million. See more on this here.

The Group disclosed a "New Zealand businesses" net interest margin up 12 basis points to 2.65% from 2.53% in the six months to September 30 last year, and a "New Zealand geography" net interest margin of 2.50%, up 10 basis points from 2.40% in the half to September 30.

Asked by interest.co.nz in a media briefing what ANZ's outlook for New Zealand margins was Smith said: "We've seen that grow fairly consistently over the last few halves. We think that has sort of plateaued now. We think that repricing and adjustment is probably at a level, so we'll probably see that be maintained over the next half."

Like its rival New Zealand banks, ANZ's margins have benefited from a big customer switch from fixed-term to floating, or variable, rate mortgages. In the group results briefing ANZ said rising New Zealand net interest income was driven by "favourable lending mix from an increased proportion of variable rate lending, lower mortgage break costs, and improved deposit margins."

The rising New Zealand margins contrast with those of both the overall ANZ Group and its Australian division. The Group net interest margin fell 6 basis points to 2.38% and the Australian division's dropped 13 basis points to 2.45%.

In February Smith said the rise of the group's New Zealand net interest margin growth was nearing an end due to strong competition among banks for customer deposits. ANZ NZ this week increased its nine month and one-year term deposit rates.

Meanwhile, ANZ NZ's half-year return on average assets rose to 1.16% from 1.02%, and operating expenses to operating income fell to 45% from 46.3%. Total staff numbers fell to 8,651 in the half from 9,022 a year ago.

Switch to one IT platform the priority

Asked about ANZ's future plans for the National Bank brand, which has been under review, Smith said the priority at this point was completing the move of ANZ onto National Bank's Systematics core banking system so that both the group's New Zealand banks were on one information technology (IT) platform.

"Moving from two major core IT systems onto one is a massive task and we have to finish that before we do any further adjustment to either brand," Smith said. "So that's where we are at present."

He said the plan remained to have the shift finished by year's end, about a year later than the initial target. ANZ bought the National Bank from Britain's Lloyds TSB in 2003.

"The important thing there is to get it right. We'll be doing testing in the middle of the year and then we'll make a decision on whether to go by the end of this year or not. But certainly that is the plan right now."

The group results disclosure A$132 million (about NZ$168 million) of spending on the IT programme thus far, with another A$15 million forecast for the second-half of the current financial year. The group says the project is expected to result in lower operational and technology costs.