Rising stress for ANZ borrowers following string of RBA rate hikes

The banking major has reported more home loan customers are behind on their repayments following a raft of RBA rate hikes.

ANZ has seen a rise in home loan customers behind on their mortgage repayments. Picture: Lisa Maree Williams/Getty Images

ANZ has reported rising stress among home loan borrowers, but bad debt charges came in better than expected for the June quarter.

The banking major on Tuesday reported more home loan customers are struggling with debt repayments, with the proportion of Australian mortgages past due by 90 days or more jumping to 84 basis points, a three-year-high. This is up 5 basis points from the March quarter.

ANZ reported a credit impairment charge of $45m for the latest quarter, comprising a $27m individual provision charge and $18m collective provision charge. This was much lower than the consensus forecast of $287m for the half, including the current quarter. ANZ will hand down its full-year results in November.

Unlike its peers, ANZ does not report quarterly profit figures, but does give an update on capital, lending and deposit growth, and asset quality.

Both lending and deposits rose over the three months to the end of June, with lending growth in all four major divisions as its institutional and commercial businesses carried the weight of the deposit lift.

ANZ reported a 3 per cent, or $19bn, increase in loans through the June quarter, with retail and commercial up 2 per cent apiece, as institutional lending jumped 5 per cent and its New Zealand arm eked out growth of 1 per cent. Institutional growth was largely due to an increase in markets lending balances and trade lending, the bank said.

For the three months, customer deposits rose 2 per cent, driven by a 6 per cent jump in institutional deposits and a $1bn lift in commercial savings deposits. Retail and New Zealand deposits were flat.

Gross impaired assets dipped slightly to $1.4bn, but within that, retail impaired assets rose slightly, offset by improvement in institutional.

ANZ’s third quarter update came hours after New Zealand’s Commerce Commission said there was a lack of competition in New Zealand’s banking sector, which is dominated by the big four Australian banks.

“In a well-functioning market with strong competition, we’d expect to see more aggressive strategies to win customers from other banks,” commission chair John Small said.

“What we see in New Zealand is that the major banks have little strategic differentiation, and their growth targets focus on maintaining market share and protecting margins and profitability.”

The major banks were avoiding competitive responses, “resulting in limited investment in innovation, muted competition and some demographics being poorly served currently”, he said, adding that state-owned Kiwibank could act as a “disruptive maverick” for the sector.

On ANZ’s quarterly update, E&P banking analyst Azib Khan said the bank’s collective provision to credit risk weighted assets coverage looked light relative to its peers.

“ANZ’s coverage of 121 basis points at June 24 compares with CBA at 146bps, NAB at 151bps and WBC at 134bps. Closing the gap with CBA on this front would require ANZ to bolster its collective provisions by around $800m,” he said.

UBS’ John Storey said ANZ’s earnings could mirror what investors had seen in recent days from Commonwealth Bank, NAB and Westpac, and that there was scope for ANZ’s net interest margin “to have improved sequentially”.

The banks have surprised on the upside in recent days, with loan margins stabilising. Westpac on Monday said its net interest margin was 1.92 per cent in the third quarter, up 3 basis points on the first half.

Commonwealth Bank, meanwhile, earlier this month handed down a $9.8bn full-year profit for fiscal 2024, with the bank telling investors it had benefited from a better-than-expected housing market, with lending margins holding up despite hot competition between banks.

While ANZ provided no details on its net interest margin, UBS’s Mr Storey said there were indications of positive momentum.

“ANZ’s CET1 ratio and positive lending trends suggest potential for improved net interest margin. Despite higher non-performing exposures, ANZ’s capital looks strong,” Mr Storey told clients.

Citi’s Brendan Sproules said the bank’s lending over the quarter was strong, with mortgage lending accelerating to 1.6 times system. ANZ’s asset quality trends appeared better than its peers, he told clients in a note.

“Gross impaired assets fell, despite mortgage 90+ arrears edging higher. The third quarter bad and doubtful debt expense was only $45m or 2 basis points of average loans, despite no collective provision write-back. Individual provisions remain very low and below the peer group,” he said.

“The acceleration of lending growth, albeit most of it in lower-margin market and trade lending, is a positive. The asset quality trends look quite different from peers, likely to reflect ANZ’s different business mix,” Mr Sproules added.

ANZ shares were flat at $29.76 in morning trade.