Mortgage war cuts into ANZ profits

The intense mortgage lending competition which saw New Zealand's biggest bank, ANZ National, yesterday turn in a softer than expected full-year result, is damaging the earnings of the entire industry, its Australian parent says.

ANZ National's net profit for the 12 months to September was up 20 per cent at A$614 million ($657 million), but last year's net profit was on just 10 months' contribution from National Bank.

Adjusted for that, and a stronger dollar, this year's result was up 5 per cent. Overall, the New Zealand performance was softer than expected.

"Solid asset and deposit growth and favourable wholesale funding impacts were partly offset by lower margins from price competition and unfavourable product mix switching," the bank said.

ANZ Group chief executive John McFarlane said the National Bank franchise showed solid progress during the year.

"However, the extremely competitive environment coupled with increased spending to stabilise the ANZ retail business, subdued the result."

Commenting on the BNZ-initiated price competition in the mortgage market, McFarlane said it had damaged the industry's earnings in New Zealand "quite materially".

The mortgage war was not resulting in significant changes in market share, "but is materially affecting returns".

Breaking yesterday's results down, National Bank Retail's full year net profit of $262 million was up 17.6 per cent on last year, adjusted for the 10-month period, but ANZ's was down 3.2 per cent at $203 million.

The ANZ result reflected "the competitor-driven net interest margin reduction, increased proportion of low margin fixed rate mortgages, and reduced fee income from the restructuring of honour fees to address customer concerns as part of the ANZ Turnaround initiative".

McFarlane said the integration of the banks, which cost $139 million during the year, would be virtually complete by the end of the year.

Nevertheless, the bank is expecting to pay $52 million in integration costs during the next financial year.

Across the rest of ANZ's New Zealand businesses, corporate banking net profit was up 19.5 per cent at $135 million, rural banking was up 12.5 per cent at $81 million, institutional banking was down 4 per cent at $216 million and UDC Finance was down 2.4 per cent at $41 million.