ANZ cash profit slides 3pc in 9 months to June

ANZ has defended not passing on the RBA rate cut in full, as profit slipped to $5.2bn in the nine months to June.

ANZ chief executive Shayne Elliott says responding to the RBA is a “rather complex formula”.

ANZ chief executive Shayne Elliott has defended the bank’s refusal to pass on the latest Reserve Bank of Australia rate cut in full, arguing that without gifting depositors with higher rates the bank wouldn’t have the money to lend out.

Speaking to ANZ’s internal news service BlueNotes after the bank unveiled a 3 per cent slide in cash profit for the nine months through June, Mr Elliott said responding to the RBA’s rate moves was a “rather complex formula” for the bank, which passed on less than half of the official 25 basis point cut.

“We have depositors on one side and we have borrowers on the other; and it’s interesting to note, we have five times as many depositors as we do borrowers,” Mr Elliott said. “We need to get that balance right because without those really valuable deposits, we don’t have any money to lend out.”

The lender (ANZ), the fourth largest bank in Australia, booked a nine-month unaudited cash profit of $5.2 billion, which was down 3 per cent year-on-year, despite maintaining a stable margin as more than $1 billon in provisions weighed on the bank.

Profit before provisions was up 5 per cent over the same time, but the total provision charge of $1.4bn dampened the headline result. ANZ’s net interest margin — the key measure of profitability — was stable over the period, despite heavy competition for mortgages and deposits.

ANZ chief executive Shayne Elliott said there continued to be opportunities for growth in retail and commercial banking in Australia and New Zealand but the times were tough.

“The revenue environment for banking, however, is more constrained and this means a consistently strong focus on productivity and capital efficiency disciplines is now fundamental to the way we are running the business,” he said.

ANZ is the first of the big four banks to have rebased its generous dividend after a series of writedowns and provisions across the Asia-focused bank. The bank saw its first-half profit tumble 24 per cent earlier this year and a $700m charge relating to software capitalisation and impairments in its Asian operations.

The bank’s bad debt charge spiked to $918m at its first half earnings, and ANZ today said the third quarter “individual provision charge” was in line with the first-half average.

In the interview with ANZ’s internal news service BlueNotes, Mr Elliott said bad debts were manageable.

“It hasn’t got any better but hasn’t got any worse and we think that probably feels about right and we’d expect the same to continue for a period of time,” Mr Elliott said.

But he warned the subdued growth environment was a long term feature of the global economy.

“We want to be prepared for that slow-growth environment and that says that much more of our focus is on righting our own ship and getting our costs under control,” Mr Elliott said. “We basically think we’re in for a lower growth environment for many years to come, which is not necessarily a bad thing by the way. In Australia we’ve had it really good for a long period of time but it’s just getting a little bit harder.”