ANZ's Profit Decline to $6.7 Billion Reflects Intense Mortgage Competition and Rising Hardship Requests
ANZ has reported a significant dip in its profits, with its full-year cash profit falling 8% to $6.7 billion. This result comes amid an intensely competitive home loan market, high inflation, and the ongoing impact of rising interest rates. The result also missed analysts' expectations, a trend echoed by rival banks, including National Australia Bank, which also faced pressure from the same market forces.
ANZ's CEO, Shayne Elliott, pointed out that the fierce competition in home lending and deposit markets, fueled by both the big banks and challenger institutions like Macquarie Group, has severely impacted profitability. However, despite these challenges, the bank managed to grow its mortgage book and deposits by 7%. This growth was essential to maintaining its position, even as its net interest margin—the key measure of profitability in banking—declined from 1.7% to 1.57%.
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A major factor contributing to ANZ’s weaker performance was an increase in loan arrears, which rose by 17 basis points to 1.69% over the year, the highest it’s been in three years. This suggests that more customers are struggling to meet their repayments, exacerbated by higher interest rates. As a result, the number of customers seeking hardship support has increased, further highlighting the financial strain many are under.
Elliott noted that while overall customer resilience was stronger than expected, it was clear that not everyone was managing as well, especially with many now seeking assistance due to the pressure from ongoing interest rate hikes. In fact, the bank saw a 47% rise in loans that were more than 90 days overdue but not yet formally impaired.
On a more positive note, the acquisition of Suncorp Bank earlier in the year contributed to ANZ’s revenue, with Suncorp's solid customer base and growth in home loans and deposits providing a buffer against some of the market's pressures. Despite the drop in profits, the acquisition proved beneficial, even if it came with an associated $196 million in one-off costs.
Despite the overall profit decline, ANZ declared a reduced dividend of $1.66 per share, down from $1.75 the previous year. The lower payout reflects the financial challenges faced by the bank amid fierce competition, but still marks the second-best revenue performance in the bank's history.
So, ANZ's results highlight the significant headwinds facing major banks in the current economic environment. Intense competition, higher interest rates, and the increased demand for hardship support from customers are all weighing heavily on profitability. While ANZ’s efforts to maintain a steady revenue stream through strategic growth in mortgages and deposits are commendable, the road ahead remains uncertain as the bank navigates these challenging times.
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