ANZ surprises on lending, asset quality

Big four bank defies expectations in its first quarter update, with solid lending growth and better-than-expected asset quality shining through.

Australia and New Zealand Bank has defied expectations in its first quarter update, with solid lending growth and better-than-expected asset quality shining through despite predictions of heightened mortgage stress and loan losses following successive painful rate rises and stubbornly high inflation.

For the three months to December 31, the big four bank delivered above-system home loan growth, adding $7bn to its book with competitive pricing and cashback offers.

It comes as lenders across the board pursue aggressive tactics to win more of the refinance market, all as a deluge of fixed home loans expire, pushing more borrowers onto higher variable rates.

ANZ’s institutional lending fared even better in the quarter, with the bank adding a further $11bn to its book, improving its performance from the prior quarter.

All divisions reported higher customer deposits, including stronger flows into term deposits.

Credit quality, according to its pillar three disclosures released on Thursday, was a further surprise, with impaired assets actually declining through the three months despite surging inflation and rising rates combining to deliver the worst cost-of-living crisis in decades.

Gross impaired assets fell 22 per cent to $1.1bn by December’s end, while its 90-plus days past due loans also declined, sliding to 0.42 per cent, down from 0.43 per cent of its lending book in the September quarter.

A provision charge of $83m was also better than analysts had expected, with a $17m collective provision charge more than offset by a $101m individual provision release.

The better-than-expected update saw ANZ lead the rest of the majors higher in midday trade, with its stock up 0.8 per cent compared to 0.2 per cent gains for the other big three.

With the positive momentum, analysts were bullish on ANZ’s near-term outlook, with Citi’s Brendan Sproules saying the bank was his top pick in the sector.

“ANZ’s first-quarter disclosures exhibited strong trends in both lending growth and asset quality. No earnings disclosure was provided, but we think that after backing out risk-weighted asset movements from capital, it comfortably implies above market earnings, although subject to movements in deductions/reserves,” he told clients in a note.

Asset quality would be the key focus of the release, he noted. But he sounded a note of caution for the months ahead: “Despite fears of deteriorating asset quality, impaired assets declined again in the quarter, although this could be the bottom as, seasonally, mortgages and personal credit arrears tick higher in the March quarter.”

The momentum in institutional lending was likely driven by more available liquidity and pricing versus debt markets, Mr Sproules added.

“ANZ remains our top pick in the sector, and we expect the lending momentum, particularly in institutional, to continue to differentiate versus peers.”

The update comes as lenders this week passed on the Reserve Bank’s latest rate hike of 0.25 per cent.

Commonwealth Bank was the latest to add the 25 basis points to its variable home loans, announcing the change on Thursday. The 0.25 percentage point increase to its variable home loan rates will kick in from February 17.

ANZ was first off the bat on Tuesday following the RBA’s decision, announcing its variable interest rates would increase by 0.25 per cent, also effective February 17. The change brings its lowest variable rate above 5 per cent.

ANZ shares were up 0.8 per cent at $25.99 shortly after midday.