ANZ feels the pressure as profits rise 4pc

Chief executive Shayne Elliott says ANZ believes it is a responsible lender but will further tighten its processes.

Shayne Elliott in Sydney yesterday after announcing ANZ’s half-year result. Picture: Hollie Adams

ANZ is feeling the heat from the financial services royal commission, as frontline staff respond to allegations that the banks have failed to meet their responsible lending obligations by becoming more cautious about approving loans to home buyers and small businesses.

Unveiling a 4 per cent lift in half-year cash profit to $3.5 billion, helped by a sharp fall in bad debts, chief executive Shayne Elliott said ANZ believed it was a responsible lender but would further tighten its processes in the coming weeks by requiring more documentation to verify income and expenses.

This would make it harder for customers to get approval for their loan applications.

In the meantime, volume growth was slowing, and it was “reasonable to suspect” — although difficult to demonstrate a direct correlation — that the royal commission was playing a part.

UBS has persistently warned about the potential for a credit crunch triggered by the royal commission recommending a much stricter definition of the “reasonable inquiries” banks are required to make into a customer’s financial situation.

However, Mr Elliott said a credit crunch would be an “extreme” outcome. “I personally think that would be a little dramatic,” he told The Australian. “The evidence to date over many years — and it’s a backward-looking measure — is that people have been able to ­afford their loans, so the idea of a credit crunch is a bit extreme.

“But at the fringe, the customer who has a good relationship with the bank but doesn’t have all their documents might find it a little more difficult to get approval.”

ANZ’s 4 per cent increase in cash profit was partly driven by a continuing, benign credit environment, with the year-on-year provision charge down 43 per cent from $720 million to $408m. Revenue growth was elusive — flat compared to the September half year and 2 per cent lower on a year ago due to asset sales and a narrowing net interest margin, down seven basis points to 1.93 per cent.

Mr Elliott said the outlook for revenue growth would continue to be constrained in the second half by intense competition and the impact of regulation.

While economic growth was expected to pick up in the coming year, led by a broad lift in the business sector and a stimulus from public spending, historically high levels of household debt and low wage growth would offset some of the impact.

Consumers were therefore likely to remain cautious.

UBS said the result was broadly in line with expectations.

“Soft underlying trends were offset by very low credit charges,” analyst Jon Mott said.

He highlighted Mr Elliott’s commentary that the banking sector had enjoyed a golden period of more than 20 years, and things were now going to get harder.

On the upside, the ANZ chief said asset sales and the drive to become a simpler organisation were helping returns, with return on ­equity up 32 basis points to 11.9 per cent.

ANZ closed the half year with a sector-leading tier-one capital ratio of 11 per cent and had embarked on a $1.5bn share buyback.

Efficiency was improving, as well — expenses had fallen in absolute terms for the past four halves, enabling the bank to lift investment in its digital capability.

The number of full-time staff declined from 46,046 a year ago to 39,540 today, mostly due to asset sales.

With ANZ’s annual expenses about $9bn, Mr Elliott said it was conceivable that that figure could be slashed by 10 per cent to $8bn through the replacement of paper-based systems and technological advances over the next five years.

“I think that’s absolutely possible,” he said.

On the prudential regulator’s investigation into Commonwealth Bank’s culture and risk framework, released yesterday, Mr Elliott said he had already started a self-assessment program, as required by the regulator.

He said he was hopeful the ANZ board would be able to consider the self-assessment in about a month.

ANZ’s legal costs for the royal commission would be about $50m for the financial year, and the bank was committed to engaging with the inquiry in an “open, constructive and transparent” manner.

“ANZ will learn from this inquiry and continue to take real ­action to restore trust within the community,” Mr Elliott said.