Mortgage wars take toll on ANZ as institutional bank shines

ANZ’s half-year results have revealed the cost of its mortgage wars with rivals and a 7 per cent slide in cash profit.

Shayne Elliott delivers ANZ’s half-year results on Tuesday. Picture: Arsineh Houspian

ANZ’s half-year results have revealed the cost of its mortgage wars with rivals – and a 7 per cent slide in cash profit to $3.55bn, in line with analyst expectations.

The result revealed a mixed performance across its divisions, with the bank’s institutional arm delivering almost 43 per cent of ANZ’s overall cash profit.

Only ANZ’s institutional banking arm and its New Zealand lending operations enjoyed profit growth, against a retreat at both the bank’s Australian retail and commercial arms amid higher costs and lower lending margins.

ANZ’s retail arm, which writes the bank’s home loans and holds the majority of its deposits, booked a fall in cash profits of 9 per cent to $794m for the first half.

But the bank signalled this was despite home loan growth running above system growth and pricing above the cost of capital, which saw ANZ gain on rivals in a race for market share.

ANZ chief executive Shayne Elliott said the bank had to contain costs, with ANZ facing a mounting wage bill from its almost 40,000 staff.

Mr Elliott said ANZ didn’t have power over pricing on its operational costs, noting “the 10 odd billion dollars it costs to run the bank, we don’t get to pass that on”, while defending the bank’s $3.5bn interim profits.

“These are not super profits. We are holding our head above water,” he said.

ANZ’s cost line is set to be expanded with its acquisition of Suncorp Bank. The $4.9bn deal to buy the bank is expected to be sealed in August after the Queensland and federal governments sign off on the bid.

Mr Elliot said Suncorp Bank would allow ANZ to spread its costs across more customers and gain access to a cheaper funding source, thanks to the Queensland bank’s deposits.

ANZ plans to roll out its ANZ Plus banking platform across much of Suncorp’s operations in a bid to push borrowers and bank customers into the lower-cost system, as well as stress testing it ahead of pushing it to the millions of ANZ customers.

ANZ’s net interest margin, or the measure of the bank’s overall profitability on loans, fell 9 basis points in the six months to March 31 to 1.56 per cent.

This was down from 1.65 per cent in September last year and 1.75 in March 2023.

Profits from ANZ’s commercial division, which writes business loans, fell 5 per cent to $665m, despite an overall lift in lending and deposits across the lender.

But the institutional banking arm was the standout, with cash profits up 12 per cent to $1.5bn as market income drove returns.

The institutional banking arm now accounts for 43 per cent of ANZ’s overall cash result.

Meanwhile, ANZ said a 19 per cent lift in international profits, from the bank’s operations across Asia showed the strength of its “globally diversified business”.

The New Zealand arm, the biggest bank in the country, lifted its profit by 2 per cent to $NZ852m ($773m), with balance sheet and deposit growth despite challenging economic conditions.

Mr Elliott said New Zealand faced a different outlook to Australia, with a narrower economy that was “more prone to stress”.

UBS analyst John Storey said ANZ was best placed to avoid the structural headwinds in retail banking.

But Citi analyst Brendan Sproules said the results were “fairly neutral”, warning the results were “slightly lower quality than peers”.

Shares in ANZ closed up 0.1 per cent to $28.80, recovering from early falls.