ANZ unwinds provisions as economy improves
ANZ Bank’s cash profit has jumped and it’s trimmed provisions amid a rosier outlook, but it warns things could change quickly.
ANZ Bank has joined Westpac in starting to unwind excessive COVID-19 provisions from last year, as the banking industry benefits from improved economic conditions despite rolling lockdowns.
Analysts said on Thursday that the sector’s reversal of provisions and stronger capital ratios had brought forward the likelihood of capital management moves.
Announcing a cash profit from continuing operations of $1.81bn, up 54 per cent on the average of the two preceding quarters, chief executive Shayne Elliott said ANZ had found in December that the outlook wasn’t as bad as previously expected.
“So that meant we were able to just trim those (provisions) back a little bit,” Mr Elliott said.
“We’re still incredibly well provided if and when things did deteriorate further, but the outlook is a lot more positive where we sit today than it was going into the fourth quarter of 2020.”
After setting aside $1.7bn in collective provisions last year, ANZ announced a net release of $150m for the December quarter, including a specific charge of $23m and a $173m unwind in collective provisions.
This compared to an average charge of $531m in the two previous quarters, and reflected the impact of government and bank support packages for the pandemic.
On Wednesday, Westpac unveiled a $501m impairment benefit.
The other major banks are expected to follow suit as volatility subsides, despite recent lockdowns in Perth, Brisbane, Melbourne and Auckland.
ANZ said its current settings were prudent and appropriate given the level of uncertainty.
The bank’s statutory profit climbed to $1.62bn from an average of $1.02bn in the last two quarters of 2020.
Margins were up across the group due to higher volume growth in targeted segments and an “active” approach to risk and pricing.
This led to a 4 per cent increase in revenue for the quarter, excluding markets income.
“This is a strong performance in volatile trading conditions that again highlights the benefits of disciplined execution of our strategy as well as maintaining a simpler and well-balanced portfolio of businesses,” Mr Elliott said.
In a broadly flat market, shares in ANZ rallied 2.8 per cent to close at $26.55.
JPMorgan said the profit showcased the strongest revenue trends in the sector.
“Earnings benefited from a net writeback of collective provisions, and capital was strongly ahead of our expectation, giving ANZ a similar capital surplus to the other majors adjusted for market capitalisation,” analyst Andrew Triggs said.
“Overall, a pleasing update which should drive meaningful consensus upgrades at the revenue line.”
Morgan Stanley analyst Richard Wiles said revenue, loan losses and capital were “materially better” than forecast.
The bank’s common equity tier one ratio finished the quarter at 11.7 per cent, up from 11.3 per cent.
Again like its rivals, ANZ reported a significant reduction in deferred loans, with only one per cent of home-loan customers in Australia and New Zealand still receiving COVID-related support.
Of the bank’s 96,000 mortgages worth $33bn to have their repayments frozen, only 15,000 worth $6bn remain.
Similarly for the business bank, 23,800 deferred loans worth $10bn at the peak have been whittled down to 2500 loans worth $1bn.
The net interest margin struck another positive note for the bank, up 5 basis points from the second half from 1.57 per cent to 1.62 per cent.
The bank’s common equity tier one ratio finished the quarter at 11.7 per cent, up from 11.3 per cent.
Mr Elliott said ANZ was well-positioned heading into the remainder of 2021 with good momentum in its core businesses.
Evans & Partners analyst Matthew Wilson said ANZ traded at a 7 per cent discount to Westpac but was “in much better shape”.
“It is externally focused with the significant self-help behind it,” Mr Wilson said.
“With a strong balance sheet, ANZ has a franchise ready to do business across the full banking suite – retail, corporate and institutional.”
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