ANZ's New Zealand chief executive has defended its record profit and says having a strong bank going into a time of economic uncertainty is a good thing.
The country's largest bank reported a record cash
"Yes it's a big number but we are a very big company," ANZ chief executive Antonia Watson says. Photo / Supplied
ANZ's New Zealand chief executive has defended its record profit and says having a strong bank going into a time of economic uncertainty is a good thing.
The country's largest bank reported a record cash profit of $2.064 billion for the year to September 30 - up 8 per cent on the prior financial year and a statutory net profit of $2.299b - a rise of 20 per cent.
That rise comes as New Zealand's economy is slowing and Kiwis are feeling a pinch in the pocket with the high cost of living.
ANZ CEO Antonia Watson said while the profit figure was a big number it was important to see it in context.
"Yes it's a big number but we are a very big company. We have got ten times the capital of Spark. We have got $200 billion of assets."
Watson said it was better to look at its profitability level which was around 13 per cent.
"That's about the middle of the road for the top NZX companies. It has actually decreased over the last couple of years because of the additional capital we have had to put in for the RBNZ.
"We have got some dark clouds on the horizon and having a strong bank going into a period of economic uncertainty or a strong banking system is a really good thing."
Watson said the profit increase was a result of pent-up spending activity driven by the desire of many customers to get back to normal and the strong housing market.
Home lending increased $5.3b to $104b over the 12 months to 30 September 2022.
But while the housing market had been strong for most of the financial year it had quietened significantly in recent months, after four Official Cash Rate (OCR) rises since May.
Watson said it was now writing a tenth of the home loans it was doing in an average month compared with when things were at their peak in 2021.
"We have certainly seen a slowdown."
The increase in interest rates had coincided with winter which tended to be a slower period for home lending.
But she was hopeful of it picking up with spring's warmer weather.
"It feels like when you look at the market there are signs of more activity as spring comes along.
"Our economists are forecasting about 3.5 per cent housing growth in the coming year. That is lower than it has been for quite some time. But certainly higher than the run rate of the last few months."
Higher interest rates didn't mean it was turning down more customers but it limited how much people could borrow, she said.
"It's about saying here's how much you can afford and the issue we have got at the moment is house prices, whilst they have come back a bit, they are quite elevated so what you might have been able to afford when we were testing at 5.8 per cent is going to be different at what we are testing now at around 8 per cent.
"That makes it tougher for people to buy a home."
Watson said business and institutional customers continued to manage well despite many facing challenges throughout the year, including cost inflation, supply chain difficulties, and finding staff.
Non-housing lending to business and institutional customers — including agri — remained muted, increasing by $700 million.
That included $5b of new lending but many had also paid back loans.
"Our businesses are in reasonably good shape but it's a tough time because the whole expectation is the point of interest rates going up is that people spend more on servicing debt, have less disposable income so it has been good to see the level of savings and preparedness within businesses financially for these times."
ANZ itself is also preparing for tougher times ahead increasing its credit impairment provisions to $751m, with a $39m charge recognised for FY22.
Watson said in 2020 the bank took a large credit impairment charge which saw its profit fall 30 per cent.
"We felt comfortable releasing some of that last year. The Covid impacts weren't as much as expected. It is fair to say we have released more of the Covid impacts but we have then provided for those dark clouds that we are seeing."
She said 57 per cent of its home loan customers were still on an interest rate that began with a two or a three and those fixed terms were due to roll over in the next year or so.
"There is still some pain to come. Inflation is stubbornly high. Our economists are expecting a couple of large OCR rises in the next few months so times are looking tougher and the provisioning line is a reflection of that."
Watson said customers were still well positioned with high employment and analysis of its borrowers showed their pay had increased by an average of 6 per cent in the last year.
"That provides a good buffer against interest rate rises. People have been saving more and a lot of customers are ahead on their repayments.
"Absolutely people are starting in good shape. However interest rates are rising quickly and by quite a bit."
The bank had set up a programme called ANZ assist to communicate with customers and encourage those who got into difficulty or find themselves looking like they will miss payments to contact the bank as soon as possible.
Watson said there were a number of levers it could pull to help people.
"Whether it is interest-only or extending terms, just helping them with tips on spending. But all of those things are much better enacted earlier rather than later."
She said the ones it was looking at the most were those that took out higher loan-to-value ratio loans over the six months when its test rate was at its lowest - 5.8 per cent.
ANZ's one year special fixed term mortgage rate has now exceeded that at 5.99 per cent and for those without 20 per cent equity the one year rate has jumped to 6.59 per cent.
"That particular cohort we are taking an extra good look at."
Commentators have also talked up the need for unemployment to rise to combat the high inflation.
Watson said the two things banks always worried about were interest rates rising significantly - which they had - and rising unemployment.
"If people's houses have decreased in value they can still service their home loans, it is when you lose your income that it is much harder.
"Rising unemployment is a concern for us in terms of our customer's ability to afford their home loan. But that is part of the medicine for keeping a lid on inflation. That's one of the reasons we have got the provisioning because we do feel as if there are dark clouds on the horizon."
Watson said it would be looking hard at credit risk over the year ahead.
"It is very much an environment where we are looking hard at credit risk - that hasn't been the thing - other than a period of time over Covid - it hasn't been one of the things in the last few years - we have got such good data now we can really keep a good close eye on our book and be ready to help customers as soon as possible. That's very much what we are looking at."
Financial Times: Snack rivals set to merge in one of the biggest deals of the year.