ANZ New Zealand earnings drop 13% on skinnier margins, more bad debts

 ANZ New Zealand's increase in credit impairment charges was largely due to higher new provisioning in its agri and commercial portfolios, and lower write-backs than the year earlier.

ANZ New Zealand, the local unit of Australia & New Zealand Banking Group, posted a 13% fall in annual earnings as margins at the country's biggest lender got squeezed by more expensive funding and stiff competition for mortgage lending, and as it dealt with more bad debts.

Net profit dropped 13% to $1.54 billion in the 12 months ending September, with both the bottom line and earnings measure weighed on by restructuring costs and charges from capitalising the bank's software.

Cash profit, the favoured measure of the Australian-owned banks, fell to $1.53 billion from $1.69 billion a year earlier, the Auckland-based lender said in a statement. Net interest income rose 5% to $3.03 billion, with net interest margins from the banking division shrinking 12 basis points to 2.38%, while provisions for bad debts almost doubled to $149 million.

ANZ New Zealand chief executive David Hisco acknowledged profit "wasn't as strong as the 2015 financial year" when it eked out a 0.3% gain in earnings as a bigger loan book made up for skinnier margins but said "the New Zealand business is performing well and reflects the performance of the economy."

The New Zealand bank's net home loans expanded 8% to $68.71 billion in the year, while other retail loans were flat at $4.02 billion, and commercial lending increased 1% to $40.42 billion. ANZ New Zealand's retail lending lifted earnings 8% to $941 million, while its commercial operations registered a 14% fall in earnings to $413 million, and its institutional businesses posted a 39% slump in profit to $203 million.

The New Zealand banking division accounted for 22% of ANZ's group cash profit of $A5.89 billion, an 18% decline from a year earlier. The Australian parent booked $A1.08 billion of charges on software capitalisation, restructuring costs and the sale of its Asian businesses. The board declared a final dividend of 80Ac per share, payable on December 16 with a November 15 record date. That takes the annual payout to $A1.60, down 12% from a year earlier.

ANZ New Zealand's increase in credit impairment charges was largely due to higher new provisioning in its agri and commercial portfolios, and lower write-backs than the year earlier. Mr Hisco said the agri portfolio "performed well during the downturn in global dairy prices as many farming customers adjusted their cost structures to remain profitable at more modest dairy payout ranges" and that the lender was "optimistic about the prospects of dairy and believes many of its farming customers are positioning themselves to take advantage of further industry consolidation as well as a back to basic, high-performing, low-cost production model."

Mr Hisco backed moves by the Reserve Bank to curb highly leveraged mortgage lending to investors, and said a slower rate of growth in deposits was making it difficult for banks to fund credit growth as they had to access more expensive overseas funding.

ANZ New Zealand's mortgage book accounted for about 12% of group lending, up from 10% a year earlier, of which 27% were investors compared to 26% at the end of the 2015 financial year.

ANZ's dual-listed shares rose 0.4% to $28.80 on the NZX, and closed yesterday at $A27.18 on the ASX.

(BusinessDesk)

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