ANZ Bank delivers flat $6.47 billion profit in ‘challenging’ conditions

The major lender has flagged record low interest rates and increased competition for its relatively poor profit result.

ANZ Bank has been stung with a sharp decline in its core Australian division due to a “challenging” year weighed down by record low interest rates and increased competition.

The major lender will pay a partially franked dividend for the first time in 20 years after low interest rates and customer compensation dragged on its local retail operations and led to a flat full-year profit of $6.47 billion.

The bank held its final dividend at 80 cents per share but reduced the franking level from 100 per cent to 70 per cent for its first partially franked dividend since 1999.

Chief executive Shayne Elliott said the franking decision was a result of pressures facing the profitability of the bank’s Australian business, which posted a 12 per cent fall in profit to $3.2 billion amid record low interest rates and strong competition.

ANZ Bank chief executive Shayne Elliott flagged low interest rates and increased competition for the result. Picture: Kym Smith

Factoring in its discontinued wealth operations, ANZ’s total cash profit for the 12 months to September 30 rose 6.0 per cent.

“This has been a challenging year of slow economic growth, increased competition, regulatory change and global uncertainty,” Mr Elliott said in a release on Thursday.

“Retail and commercial in Australia had a difficult year … (and) increased remediation charges, intense competition and record low interest rates have had a significant impact on earnings.”

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The retail performance was offset by a 24 per cent profit increase at the bank’s institutional division to $1.83 billion, which also wiped out profit falls from all its other units.

ANZ shares slipped 2.5 per cent to $26.95 in the first 10 minutes of trade on Thursday — the most of any big four bank — but were still 10.22 per cent higher this year.

As previously announced, ANZ set aside $682 million to cover the cost of customer remediation, taking the total charges to $1.2 billion since 2017.

Net interest margin — the difference between the interest ANZ earns from loans and what it pays to fund them — decreased 12 basis points to 1.75 per cent as net interest income decreased $175 million, largely due to lower interest rates.

Nonetheless, ANZ’s common equity tier 1 capital ratio was stable at 11.4 per cent — about $3.5 billion above the Australian Prudential Regulation Authority’s “unquestionably strong” measure.

Mr Elliott said while the Australian housing market was recovering, he expected challenging trading conditions to continue.

“Geopolitical tensions will also place pressure on earnings given our exposure to global trade, although this can be managed through the diversification of our business,” Mr Elliott said.

“Increased compliance and remediation costs will also need to be closely managed over the foreseeable future.”

When ANZ last paid a partially franked dividend, it was 30 cents per share, 80 per cent franked.

The last time the franked amount was as low as FY19’s final dividend was in 1998 when ANZ paid 28 cents per share, 60 per cent franked.

ANZ POSTS FLAT FY PROFIT

• Total operating income up 2.0 per cent to $9.49 billion

• Cash profit from continuing operations flat at $6.47 billion

• Statutory profit down 7.0 per cent to $5.95 billion

• Final dividend 80 cents, 70 per cent franked v 80 cents, fully franked in percentage points