Bloomberg News

ANZ Bank First-Half Net Rises as Offshore Lending Jumps

May 02, 2012

ANZ Bank ATM in Sydney, Australia. Photographer: Ian Waldie/Bloomberg

ANZ Bank ATM in Sydney, Australia. Photographer: Ian Waldie/Bloomberg

Australia & New Zealand Banking Group Ltd. (ANZ), Australia’s third-largest bank by market value, said first-half profit climbed 10 percent on higher overseas income.

Net income in the six months ended March 31 rose to A$2.92 billion ($3.02 billion) from A$2.66 billion a year earlier, the bank said today, matching analyst estimates compiled by Bloomberg. Underlying profit from the Asia Pacific, Europe and America unit increased 21 percent from the previous six months.

The stock fell after lending profitability dropped more than analysts expected and Australian earnings slid from the previous six months. Chief Executive Officer Michael Smith is cutting jobs, costs and turning to Asia’s faster-growing economies to mitigate rising competition and a struggling housing market at home, which accounts for more than 70 percent of its lending.

“There’s strong momentum from overseas, so they’re heading in the right direction,” said TS Lim, an analyst at Bell Potter Securities Ltd. in Sydney with a “buy” rating on ANZ Bank stock. “It’s going to be tough with margins over here, but there’s still room for efficiency gains.”

Underlying profit in Australia fell 7 percent from the prior six months, a performance that Smith called “subdued.”

ANZ Bank stock dropped 0.8 percent to A$23.80 at the 4:10 p.m. close in Sydney, while the benchmark S&P/ASX 200 index advanced 0.1 percent.

‘Work Out’ Phase

The stock decline trimmed the year’s gain to 16 percent, still ranking it as the best performer among a quartet of Australian banks that includes National Australia Bank Ltd. (NAB), Commonwealth Bank of Australia (CBA) and Westpac Banking Corp. (WBC)

“We are managing in what could be described as a ‘work out’ phase in the global economy with the situation most acute in Europe,” Smith said. “Getting ahead of the game in this environment creates challenge.”

Net loans and advances in the Asia-Pacific region, Europe and America surged 32 percent from the same period a year earlier, more than four times the pace of growth in Australia, ANZ Bank said. Deposits at those offshore locations jumped 34 percent, more than double the advance at home.

At the bank’s institutional division, growth in profit, lending, and deposits also outpaced advances in Australia.

The result showed the value of reducing the bank’s reliance on Australia, which was a “drag” on earnings, Smith told reporters today. The profitability of lending in the bank’s domestic market is declining and there’s a “persistently lower demand for credit,” he said.

Margin Narrows

The bank’s group net interest margin, a measure of the profitability of lending, fell 9 basis points from a year earlier, more than the 6-point decline expected by analysts. Profitability was lowest in Australia, where the margin dropped 15 basis points.

“The issue in Australia was continued margin pressure driven by higher deposit pricing and higher long-term wholesale funding costs,” Smith told investors on a call. “It’s incredibly competitive.”

Australia’s central bank said yesterday that Europe’s debt crisis might deliver “adverse shocks” for some time as it cut benchmark borrowing costs by a larger-than-expected margin to spur economic growth.

Even after that 50 basis-point rate cut by the central bank, Australia has the highest borrowing costs, at 3.75 percent, among major developed nations. That’s weighing on the housing market and consumer confidence.

Sales of new homes in Australia fell in March to a record low, according to the Canberra-based Housing Industry Association. House prices declined in the three months through March in the longest losing streak in at least a decade, the Australian Bureau of Statistics said yesterday.

Fewer Targets

Even as Smith focuses on expanding in Asia, he said there are fewer opportunities to buy assets than he expected.

“We thought a number of European banks would sell Asian assets to delever, but that pressure has eased off,” he told reporters. “I’m probably a bit mean on price and the opportunities are not as plentiful as we hoped.”

National Australia Bank, the country’s fourth-largest bank, on April 30 reported a 16 percent decline in net income in the six months ended March 31 as it booked charges to shrink its U.K. business. Cash earnings, which excluded those costs, increased 5.7 percent to A$2.82 billion in the period, the Melbourne-based bank said.

To contact the reporters on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net; Brett Foley in Melbourne at bfoley8@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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