Analysts lift ANZ earnings expectations amid positive capital position

Analysts have tipped ANZ will raise its returns to investors when it reports its full-year results in November.

Analysts have welcomed ANZ’s better-than-expected asset quality alongside a lift in the bank‘s capital ratio, tipping it will see the bank raise its returns to investors when it reports full-year results.

In its third quarter Basel III Pillar 3 disclosures published on Thursday, the bank revealed its credit risk weighted assets were up marginally alongside a lift in gross impaired assets.

Credit risk weighted assets, which are given a risk weighting to reflect their potential for default and what losses the bank might face, lifted to $168.5bn in June.

This was up on the $164.5bn reported by ANZ in March.

However, this is well down on the $312.5bn posted by ANZ in December 2022.

Alongside this ANZ reported an increase to its overall capital position to $58.576bn.

The increase, from $57.38bn in March, sees ANZ’s CET1 climb to 13.5 per cent.

The bank’s leverage ratio also improved in the three months to June, climbing to 5.5 per cent, up from 5.3 per cent in March as ANZ’s capital lifted while total exposures sunk.

Gross impaired assets edged up 18 basis points to $1.3bn, but Citi analyst Brendan Sproules noted this was still “very modest as are the areas in the consumer portfolio”.

ANZ reported $383m of residential mortgage loans were impaired.

Mr Sproules said ANZ’s asset quality “continues to beat expectations”.

“Overall quality of the portfolio continues to look strong. There was only a very modest increase in gross impaired assets,” he said.

“Consumer arrears continue to rise, but at a modest pace and below historical levels.”

Mr Sproules said ANZ’s disclosures were “another relatively benign asset quality print”, but warned they made understanding earnings difficult.

“While the capital appears slightly soft, ultimately the underlying drivers are opaque and it is not possible to make any inferences on earnings,” he said. “We think it unlikely that there was any material miss on earnings in the 3Q23, given asset quality was a beat and deposit trends look broadly favourable, particularly in the institutional side.”

E&P Financial banks research executive director Azib Khan said he expected consensus around ANZ’s full-year cash earnings would be upgraded on the back of its favourable capital position.

He noted ANZ’s capital position was 20 basis points above expectations.

All eyes have been on ANZ ahead of its expected move to appeal the Australian Competition and Consumer Commissions’ decision to block its $4.9bn purchase of Suncorp Bank.

However, some market watchers have called on the bank to ditch its plans and return the excess capital to shareholders.

Shares in ANZ traded down 23c at $24.59, alongside a broader slide in the market.