Profit for ANZ's core business falls 60pc

Graham Hodges

ANZ National says it has delivered a "solid" result despite the profitability of core New Zealand banking businesses tumbling 60 per cent to $168 million in the March half-year.

The slump was blamed on charges for bad debts and the ING frozen funds settlement.

It was only the bank's local institutional division - able to make some big money on market volatility - which held the overall New Zealand result to a 31 per cent decline on the same period last year.

Australian parent company ANZ Banking Group reported a 28 per cent fall in net profit to A$1.417 billion ($1.78 billion) with cash profit, which is adjusted for one-off items and movements on derivatives, falling 43 per cent to A$954 million.

Including its institutional division, but excluding one-offs such as the ING settlement, ANZ National posted an underlying or cash profit of $494 million against $521 million year earlier - a decline of 5 per cent.

Leaving aside its local institutional business, ANZ National, New Zealand's biggest bank, suffered a 31 per cent decline in underlying net profit to $284 million. When the $116 million after-tax ING charge is added, that is a 59 per cent fall in its bottom line to $168 million.

There was little movement in operating income albeit expenses rose 5 per cent. But what really hit the bank was a rise in bad-debt charges from $77 million last year to $247 million.

"It's a tough market," said chief executive Graham Hodges, who leaves shortly to take up the deputy chief executive role at ANZ Banking Group.

"Given the environment both domestically and internationally the [NZ] result is a pretty solid underlying performance," he said.

"A large part of that's been our markets business which clearly has been able to help the bank and customers in a time of significant market volatility. It's some of that same volatility which is actually impacting the other businesses. I guess it goes to the heart of having a relatively diverse bank." Underlying profit at the bank's institutional business rose 82 per cent to $229 million, largely offsetting the plunging fortunes of the core domestic retail and commercial banking business.

Speaking about the rise in bad-debt charges, Hodges noted the deterioration in credit quality in the home-loan market was now spreading from more speculative borrowers including property investors to core owner-occupier mortgagors.

"That's the market where we're looking through our financial stress programmes to do as much as we can to support people in their houses.

"It's not in our interest or theirs to force people out of their homes."

Bad-debt charges on business loans had also risen noticeably in the past two or three months.

Like BNZ chief executive Andrew Thorburn this week, Hodges said he expected credit quality to continue to deteriorate for the next 12 months, with unemployment levels the key to the situation's seriousness.