ANZ profits slammed by credit impairment charges

ANZ has released its full-year results for 2020, in which it reported a 42 per cent drop in cash profit for its continuing operations on the prior corresponding period, to $3.76 billion.

The major bank said this decrease was largely driven by full-year credit impairment charges, stating that the “estimation uncertainty is predominantly related to expected credit losses where the group recognised a credit impairment charge”.

ANZ’s credit impairment charges stood at $2.74 billion pre-tax in the September 2020 full year, which increased from the previous year due to the impact of the coronavirus pandemic, as well as a first half impairment of $815 million in respect of two of the group’s Asian associates’ investment, also related to the COVID-19 crisis.

ANZ said the “ramifications of COVID-19 continue to be uncertain and it remains difficult to predict the impact or duration of the pandemic”.

Commenting on the results, ANZ CEO Shayne Elliott said: "With operating profit before provisions broadly flat, the largest driver of the profit reduction was setting aside a further $1.7bn for possible future losses."

"It’s worth noting that we have not lost one dollar in terms of credit losses resulting from COVID directly, but we are well prepared if they occur."

Unaudited statutory profit after tax for the full year ended 30 September 2020 was down 40 per cent on the prior comparable period for the bank at $3.58 billion.

Loan deferrals

The major bank provided new data on loan deferrals in its full-year results, stating that out of a total of over 1 million home loan accounts in Australia, around 95,000 had received a deferral on their loan repayments in total.

As at 15 October, around 55,000 accounts had already completed their deferral, or advised their intended action at maturity.

Over three-quarters of these (79 per cent) are returning to full payment, while 20 per cent of borrowers have requested a further deferral, and 1 per cent have restructured their loan and sought additional support, moving to interest-only or directly into hardship, according to Mr Elliott.

Out of the approximately 11,000 loan deferrals that have requested and received an approval for a four-month extension, around 50 per cent are from Victoria (and impacted by the extended lockdown to curtail the second wave of the coronavirus pandemic).

Speaking on the deferrals measure for borrowers, Mr Elliot said the combination of federal government support and the bank’s ability to manage at a “granular level” have resulted in a more positive outcome than “many feared”.

“In a time of ultra-low interest rates, time is cheaper than at any time in our history, and so buying time through deferral can be a rational response for customers. From the bank’s perspective, it provided space to tailor the best solution for all parties,” Mr Elliott said.

“It’s worth noting that during the COVID period since March, we’ve seen on average 359 accounts provided hardship per month, including those who were not eligible for a deferral in the first place. To put this into perspective, in the six months prior, we saw on average 975 customers provided hardship per month.

“The deferral program has suppressed demand for hardship in 2H20, which means we have good capacity to manage any increase.”

Of the remaining approximately 40,000 deferrals still active, half have at least a three-month payment or greater savings “buffer”, while a quarter have made at least one payment while on deferral, and around 20 per cent have lender’s mortgage insurance.

Of those with ANZ associated transaction account data, 10 per cent are receiving either the JobKeeper or JobSeeker payment scheme.

In the commercial lending space, the bank reported that out of the 236,000 accounts in Australia, around 23,000 have received a deferral on their business loan repayments.

As at 15 October, around 15,000 accounts have completed their deferral or advised their intentions at maturity.

“Turning to business, it is clear that small businesses rather than the larger institutional part of the economy, is bearing the brunt of the economic impact. They are particularly vulnerable given their lack of diversification and limited access to capital,” Mr Elliott said.

“While our exposure to this part of the market is much smaller as a proportion of total lending than others, we’ve moved quickly to help where we can.”

Of these deferrals, around 1,600 have received a four-month extension, with 60 per cent of those being from Victoria and impacted by the extended lockdown, and 70 per cent fully secured.

“Look, if these trends continue with no rebound in Victoria, less than $1 billion of small-business loans will remain on deferral, and we are well resourced to work with these customers individually,” Mr Elliott said.

According to Mr Elliott, more than half of small-business loan extensions had finished by mid-October, with 86 per cent opting to return to full payment, 4 per cent opting for restructuring, and 9 per cent seeking a further deferral.

Credit provision

ANZ reported a total provision charge in the second half of the year of $1.06 billion, which was lower than the $1.67 billion worth of provisions taken in the first half.

“This second half charge includes an individually assessed provision charge of $395 million and a collective provision charge of $669 million as we strengthened credit reserves for our retail and commercial customers affected by COVID-19,” the bank said.

Home loan portfolio

ANZ’s total funds under management in its Australian home loans portfolio totalled $275 billion at FY20, an increase from $265 billion in FY19.

Year-to-date flow for FY20 totalled $61 billion, up from $40 billion in FY19.

Owner-occupied loans comprised 68 per cent of the portfolio, and 70 per cent of flow in FY20, while investor loans comprised 30 per cent of the portfolio and 29 per cent of flow in FY20.

Commenting on these figures, Mr Elliott said: "In Australia, we achieved strong growth in our targeted home loan segments with above system growth in the owner-occupier market."

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Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.

Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.