KEY POINTS:
Profitability at ANZ National, New Zealand's biggest bank, slowed dramatically in the second half of the financial year as households and businesses buckled under the pressure of rising interest rates and fuel and food prices.
The bank yesterday reported a September year net profit of $990 million, down 5 per cent on last year's $1.04 billion. However the difference between its first- and second-half results was sharper, with a decline of 38 per cent or 24 per cent once one-offs, including an $85 million gain on the sale of Visa shares, were stripped out.
The bank preferred to focus on what it called its GDS, or General Disclosure Statement figure, which at $1.16 billion was essentially flat on last year and was hailed as a "solid" result.
The bank's profit before tax and credit impairment was up 5 per cent at $1.65 billion but provision for credit impairment rose from $74 million a year ago to $302 million as the slowing economy affected households and businesses.
"That reflects what we call the household sector stress," said chief executive Graham Hodges.
"People have had to absorb this step pricing on their mortgages but also other costs of living have gone up, petrol, food, rates and electricity and that's caused people to default on their borrowings."
Hodges said the bank expected provisioning and loan write-offs to continue through next year, "but there's two trends at work".
He said household stress had probably now peaked with the increase in interest costs for households having to refinance their mortgages now reduced and possibly even being eliminated due to the sharp recent interest rate adjustments including yesterday's 100 basis point OCR cut. Also petrol prices were lower and households were benefiting from tax cuts.
On the other hand unemployment was likely to rise.
ANZ National's Australian parent yesterday posted a 35 per cent drop in second-half profit after provisions for delinquent loans surged.
Net income fell to A$1.36 billion in the six months ended September 30, based on subtracting first-half profit from full-year earnings announced by the bank. The company more than tripled bad-loan provisions for fiscal 2008 to A$1.95 billion and set aside A$721 million for possible losses from derivatives trades. The stock dropped as much as 5.7 per cent.
Chief executive Mike Smith's plan to double earnings by 2012 through acquisitions in Asia is being undermined at home as Australia's 17-year economic expansion loses steam and bad loans rise.
The Melbourne-based bank increased provisions after rising borrowing costs and plunging stock markets sparked the collapse of Australian margin lenders backed by the bank, including Opes Prime Group.
Smith predicted a "difficult" year ahead as the economy weakens and bad debts continue to increase from historical lows. However, he said Australia would sidestep a recession as global economic growth slowed amid the credit crisis and forecast the Australian economy to grow 1.8 per cent in 2009.
- AGENCIES
Bank says it is 'comfortable' for cash
ANZ National Bank says it is comfortable it has sufficient cash to take it well into next year and sees no need to rush into a Government guarantee for wholesale funding.
National Party leader John Key and his finance spokesman, Bill English, have recently warned that New Zealand needs to quickly implement a wholesale funding guarantee for local banks in order to prevent a liquidity squeeze heading into the Christmas period.
But Graham Hodges, ANZ National's chief executive, yesterday said: "We're more than covered right through Christmas into the New Year. What we don't know is what the world's going to look like beyond that."
Hodges said his advice to Government officials had been "we actually need to carefully think through what we want to do here and make a considered decision rather than a rushed one".
