ANZ sounds note of caution over lift in dividends

ANZ to review dividend policy, amid improved economy and end of payout cap, but decision depends on evolving COVID crisis.

ANZ holds its virtual AGM in Melbourne. Chief executive Shayne Elliott, left and chairman Paul O’Sullivan. Picture: Arsineh Houspian

ANZ has signalled a cautious approach to its dividend policy in the coming months, with chairman Paul O’Sullivan warning of the challenges ahead as COVID-19 support measures wind down.

Speaking at the company’s annual general meeting on Wednesday, Mr O’Sullivan said he was a “realist” about the difficult road ahead for the banking sector and many of its customers as he reassured that the lender was in a strong position and well capitalised.

Investment in renewables and sustainability was “a major opportunity” that ANZ was positioning for, he told shareholders.

“The $50bn committed to lending to renewables and sustainable sources of energy, we’re actually flexible on that and we expect that number will increase beyond $50bn in the next few years,” Mr O’Sullivan said.

“We are committed to working with our customers, and with our future customers, to transition to a low-carbon future. That’s a policy that we think makes the best sense commercially for the bank,” he told shareholders.

Under its new climate policy, unveiled in October, ANZ aims to work with its top 100 emitting customers to establish and strengthen low-carbon transition plans.

It also committed to funding and facilitating at least $50bn by 2025 towards sustainable solutions for its customers.

“Fundamentally, we see the move to renewables and investment in sustainability as a major opportunity for the bank and we are positioning ourselves to be at the forefront of that,” Mr O’Sullivan said on Wednesday.

Just shy of 30 per cent of ANZ shareholders backed a shareholder resolution at the AGM calling for it to reduce its exposure to the coal, oil and gas sectors.

The vote was almost double the 14.9 per cent recorded for a similar resolution lodged with ANZ last year.

On the prospect of lifting dividends, Mr O’Sullivan indicated the board was taking a wait-and-see approach.

“Ultimately, our final decision (on dividends) as a board will be influenced by how the remainder of the crisis evolves, particularly from a macro-economic perspective, and our views on the longer term sustainability of our dividend,” Mr O’Sullivan said.

“Let me assure you however, your board is acutely aware of the reliance many shareholders place on their regular dividend, and on the value of franked dividends,” he said.

ANZ paid out a full-year dividend of 60c per share, fully franked, in 2020, as its cash profit slumped more than 40 per cent. The payout was a 62 per cent drop on the $1.60 per share in 2019.

ANZ’s move to review its dividend policy comes days after peer Westpac said it hoped to return to declaring a “more consistent dividend” every six months.

“My focus will be on improving shareholder returns through a focus on good customer outcomes, cost discipline and the efficient use of capital while continuing to build a strong culture,” Mr O’Sullivan said.

The dividend review comes as ANZ chief executive Shayne Elliott revealed that 92 per cent of the bank’s home loan customers granted an initial deferral had already rolled off or advised of their intention to do so.

“While our exposure to the SME market is much smaller, the data here is also looking positive with only 3000 business loans still on repayment deferrals,” Mr Elliott said.

Commenting on the conversations ANZ was having with customers struggling to wean off their deferrals, Mr Elliott said it was always in the bank’s interest to work with borrowers.

“We are very sympathetic and it is in our interest to give people more time, or put them on a different payment plan. There is no desire to move quickly on any sort of legal proceedings.

“Sadly, sometimes it does get to a position where the right thing is for a business or homeowner to sell up, but it is rare,” he said.

The worst of the health crisis appeared to be under control, he said, as he noted that ANZ card data for the first week of December was up 14 per cent year-on-year. Spending was also up in New Zealand, he said.

Looking ahead, Mr Elliott said ANZ would continue to reshape its portfolio to produce “a more balanced, lower-risk business that generates decent, more predictable returns”.

“We are going to continue to make the bank simpler and easier to manage,” he said, pointing to ANZ’s partnership with global payments group Worldline.

ANZ on Tuesday announced it had entered into a joint venture with the European-based company, providing its small business, commercial and institutional customers access to Worldline’s ready-made products and services, including digital onboarding, alternative payment methods, fraud detection, and online and omnichannel capabilities.

Cautioning on the outlook for margins, Mr O’Sullivan said ANZ would keep “relentless pressure” on its cost base.

On capital management, he said the board and management would have an “intense focus” on managing capital and deploying shareholder funds.

Efficient capital allocation was key to sustainably growing shareholder value over time, Mr O’Sullivan said.

“The response of governments and central banks (post-GFC) has been to expand money supply with an associated reduction in interest rates.

“As a result, we believe we will be in an environment of significant liquidity, low interest rates and intense competition for some time to come,” he said.

ANZ shares closed up 1.4 per cent, at $23.28.