ANZ’s Shayne Elliott warns of more housing pain as profit falls 5pc

ANZ chief Shayne Elliott has warned of more pain in the housing market as the bank’s annual profit fell 5pc to $6.59bn.

ANZ CEO Shayne Ellitott in Sydney yesterday. Picture: AAP

ANZ chief executive Shayne Elliott has warned of further pain in the housing market, saying growth in home lending could halve and house prices will fall further over coming years.

After handing down a 5 per cent drop in annual cash net profit to $6.49 billion and flagging a tough revenue outlook, Mr Elliott said while he expected the housing downturn to continue, it was unlikely to lead to “significant falls” in house prices.

“I wouldn’t be surprised if it has further to run,” Mr Elliott said of the softness in housing. “The falls to date have been fairly moderate … the reality is the fundamentals are good.” Mr Elliott referred to factors including population and economic growth in Australia and said both remained favourable and that households continued to pay down debt. That is despite out-of-cycle interest rate rises on mortgages and higher energy and petrol prices.

However, he said growth in housing credit for owner occupiers could halve to 2-3 per cent annually and that the capacity of individuals to borrow would remain curtailed or worsen from here.

“The reason for that is all of the myriad of changes that banks and regulators have made,” Mr Elliott added, noting tighter lending standards and a move away from the household expenditure measure of assessing loan serviceability.

The ANZ result was labelled by many analysts as “messy” due to a number of one-off items including a string of asset divestments and customer remediation costs stemming from poor conduct revealed at the Hayne royal commission.

$25.93 ANZ closed up 27¢ p

But despite the fall in cash net profit from continuing operations for the 12 months ended September 30, compared to the prior corresponding period, the result beat analyst expectations and helped shares rise 1.1 per cent to $25.93 yesterday. Annual net profit including discontinued operations tumbled 16 per cent to $5.8bn while statutory net profit was flat at $6.4bn. The result was buoyed by what ANZ characterised as the “lowest credit losses in a generation” and a drop in expenses, excluding notable items, led by a fierce job-cutting regime which saw full-time employee numbers fall to 37,860 from 43,011 a year earlier.

The total provision charge for the year fell 43 per cent to $688 million.

Total revenue fell 1.4 per cent and net interest income fell in line with the net interest margin, which measures the interest earned from loans against funding costs and interest paid out.

Return on equity fell to 11 per cent at September 30 from 11.7 per cent a year earlier.

ANZ declared a final dividend of 80c per share, fully franked, taking the full year distribution to $1.60.

Concentrated Leaders Fund chief David Sokulsky said he remained underweight the banks sector but that he was confident ANZ could better navigate any sharp housing market downturn.

“There was a bit too much pessimism in the market (on bank results),” he said. “ANZ is less exposed to the riskier parts of the mortgage market … I’m probably more on the negative side than the optimistic side. I think we are yet to see the big effects on the housing market. “

Citigroup analysts said: “ANZ has delivered another well managed result, highlighted by good cost management and improving bad debt.

Continued strong capital generation and a CET1 (common equity tier-1) ratio at 11.4 per cent, well above the unquestionably strong benchmark, keeps ANZ’s capital return investment thesis intact.”

Still, ANZ’s net interest margin dropped to 1.82 per cent in ANZ’s second half from 1.93 per cent in the preceding six months. For the full year, the net interest margin was 1.87 per cent, slumping from 1.99 per cent in 2017.

The headline annual profit decline was the first in a full year result for ANZ since 2016.