ANZ flags end of decade-long investment drought

ANZ has flagged an end to the nation’s decade-long investment drought, as the bigger end of town responds to demand-fuelled inflation across the economy.

ANZ chief financial officer Farhan Faruqui at the bank’s half-year results on Wednesday. Picture: Arsineh Houspian

ANZ has flagged an end to the nation’s decade-long investment drought, as the bigger end of town responds to demand-fuelled inflation across the economy.

CEO Shayne Elliott told analysts that ANZ would need to adjust its business settings and investment priorities to reflect a “very different” operating environment, featuring greater uncertainty and rising interest rates and inflation after a 30-year period of falling rates.

“To the extent higher inflation signals excess demand, it is likely to bring to an end the investment drought in Australia that began a decade ago,” Mr Elliott said.

“As a result, we are already seeing stronger corporate demand from business customers, particularly at the bigger end.”

ANZ was also feeling the impact of higher inflation on wages growth and staff turnover, making the expense line more difficult to manage and Mr Elliott’s objective of $8bn in “run the bank” costs more demanding.

With wages accounting for about two-thirds of total costs, the bank was currently negotiating a new enterprise agreement against a background of “vastly different” employee expectations. Forecasts of 3 per cent pay increases were “not unreasonable”, possibly going as high as 4-5 per cent.

ANZ chief financial officer Farhan Faruqui said the troubled home lending business, which was shedding market share in the middle of last year, had turned the corner, returning to balance sheet growth in the first half, as forecast.

This was achieved by managing volume and improving processes, lifting the capacity of the business by 30 per cent.

Turnaround times had significantly improved across all distribution channels.

Mr Faruqui said the previously flagged objective was now to grow in line with the rest of the major banks by the end of the financial year. “But we will do so with an eye to our margin performance,” Mr Faruqui said on Wednesday.

“We did not and will not chase ‘growth for growth’s sake’ – we want profitable growth and will remain disciplined on margins.”

Mr Elliott said ANZ’s new retail banking platform, ANZ Plus, would not be a solution for the mortgage business in the next year or so as it was still under development.

After a “soft” launch in March with a transaction account, new features had been built, including the ability to make payments through BPAY and PAYID, immediate access to a digital card in an Apple Pay wallet and an Android offering.

Mr Elliott said these would be available in the coming weeks and more features would be added quickly, including the all-important mortgage product by the end of the year.

In a few months, ANZ Plus would be rolled out more broadly, along with a marketing campaign.

While ANZ Plus has received a lot of attention, Mr Elliott said there were much more attractive opportunities outside home loans, which were likely to grow at a slower rate as variable rates rose in response to RBA rate rises.

ANZ, he said, was the nation’s leading institutional bank and was well-positioned to grow in the current environment. “Institutional is now a well-run, highly disciplined business delivering returns comfortably above the cost of capital,” Mr Elliott said. “It will benefit from the sustainable finance super-cycle with material opportunities to further grow transaction processing for other financial institutions globally.”

Meanwhile, customer remediation – a key feature for all banks since the royal commission – had now moved into its final stages.

The exit of non-core business was also coming to an end.