ANZ results show continued pressure on credit quality

Last week, ANZ announced a statutory profit after tax of $2.7 billion for the half-year ended 31 March 2016 – down 22 per cent, and a cash profit of $2.8 billion, down 24 per cent.

It follows a $717 million net charge primarily related to initiatives to reposition the group for stronger profit before provisions growth in the future.

Moody’s said ANZ’s first-half results underline a transitional period for the bank as it looks to rebalance its institutional business, particularly in Asia, through divestment and a focus on higher risk-adjusted returns.

“ANZ’s underlying results are supported by the strong performance of its retail and commercial businesses in Australia and New Zealand,” Moody’s vice president and senior analyst Frank Mirenzi said.

“However, institutional earnings have been negatively impacted by higher loan loss provision charges and weaker margins, challenging the profit outlook.”

According to Moody’s, the rise in ANZ’s credit impairment charge mostly related to its large single-name exposures and the exiting of the bank’s emerging corporate loan book in Asia.

“Credit impairment charges are now climbing back towards long-run average levels, a trend that should continue over the next 12 months,” it said.

Moody’s said ANZ’s balance sheet remains “supportive and stable”, and the group has “considerable flexibility” to preserve its credit standing.

“The bank’s funding profile is largely unchanged and long-term assets are mostly funded by equity, long-term funding and stable customer deposits. The bank’s liquidity position remains very strong.

“ANZ’s pro forma Common Equity Tier 1 ratio is now at 9.2 per cent, including the impact of increased residential mortgage risk weights coming into effect in July 2016. This is broadly in line with that of its domestic peers.”

[Related: Westpac’s asset quality to ‘deteriorate’]