In its first quarter trading update ANZ released quite modest results. As low interest and exchange rates support the transition to more balanced growth following the commodities boom, the Bank was able to continue earnings momentum with cash profit up 4% to $1.85 billion when compared to prior corresponding period. This result was driven by:
- Disciplined expense management via an averaging down of the unit cost per employee as business unit efficiencies continue to be implemented; and
- Net interest margin (NIM, down 2 basis points) management. As all banks are facing higher funding costs, maintaining the NIM at current levels will be challenging.
On the divisional basis the group has outlined that retail and small business segments continue to improve while corporate borrowing remains highly competitive and is subject to weak demand. Although Australian credit environments are stable, ANZ’s exposure to Asia could reduce earnings in the second quarter as economic slowdown and increased market volatility are affecting the group’s credit books (credit charge expected to be above $800 million this half versus consensus of $735 million). The Bank’s APRA Common Equity Tier 1 (CET1) ratio was 9.4% for the quarter increasing by 0.45% (excludes 2015 final dividend payment) as a result of organic capital generation and the Esanda portfolio sale. On a Basel III internationally comparable basis the CET1 ratio was 13.1%. In order to continue to meet expected APRA “unquestionably strong” standards the Bank is expected to continue exploring the sale of assets, control costs and maintain margins to avoid raising additional capital in the face of further changes to mortgage risk weights. Total provision charge was $362 million which was up 4% on the average of the last two quarters of the 2015 financial year.