ANZ warns economic struggles will continue into 2021 due to global pandemic

One of Australia’s major banks has warned economic struggles are likely to still occur despite Australia’s strong handling of the coronavirus pandemic.

ANZ says Australia will still face economic challenges well into 2021. Picture: NCA NewsWire / Gaye Gerard

ANZ says Australia will still face economic challenges well into 2021, warning households and businesses may struggle as federal government stimulus packages continue to taper in the first half of the coming year.

Holding its annual general meeting on Wednesday, the major bank’s newly appointed chairman Paul O’Sullivan said Australia’s ability to stamp out the virus locally was optimistic; however, ongoing hurdles would persist into the new year.

“We know there are many individuals who have had an incredibly demanding year despite the considerable support from the governments in Australia and New Zealand,” Mr O’Sullivan said.

“We are also acutely aware that much of this assistance will need to unwind in the early part of next year – understandably. This may present further economic challenges that need to be very carefully navigated.”

ANZ Bank’s new chairman Paul O'Sullivan says Australia’s economic challenges need to be navigated carefully. Picture: NCA NewsWire/Bianca De Marchi

ANZ chief executive Shayne Elliott in his opening statement reaffirmed the bank’s simplification strategy to de-risk the company and return to core banking services.

“Our work to simplify and strengthen the bank has materially lowered our exposure to potential credit and operational risks,” Mr Elliott said.

The simplification and risk minimisation overhaul has caused ANZ to exit its Asian banking business, sell its Esanda motor dealer finance business and prioritise owner-occupier home loans over investor home loans.

Mr Elliott also noted 92 per cent of COVID-19 home loan deferrals had resumed repayments, while 3000 business loan customers remained on suspended payments.

For its 2020 financial year, ANZ posted a cash profit of $3.7 billion, a fall of 42 per cent on the previous year.

Mr O’Sullivan said further consideration on dividend payments to shareholders in 2021 would be based on the operating environment at the time.

ANZ chief executive Shayne Elliott has reaffirmed the bank’s simplification strategy. Picture: Attila Csaszar/ AAP

The Australian Prudential Regulation Authority set guidelines earlier in the year that limited banks to only distribute half of profits via dividends while the pandemic persists. On Tuesday, the regulator scrapped the COVID-19 guidelines.

Shareholders asked the board how customers would be impacted by the proposed repeal of responsible lending laws governed by the Australian Securities and Investments Commission.

Mr O’Sullivan said close to 90 per cent of responsible lending laws were covered by APRA’s governance of the banking industry.

“I want to reassure everyone that we have many different codes of practice that guide our lending responsibilities and we do not see this in any way of encouraging us to be irresponsible in a way that we operate,” he said.

ANZ has set aside $5bn in reserves to cope with the pandemic’s impact.

ANZ has set aside $5bn in reserves to cope with the pandemic’s impact. Picture: NCA NewsWire / Gaye Gerard

Mr Elliott said the bank remained one of the most well-capitalised banks in the world.

“We will continue to reshape our portfolio to produce a more balanced, lower-risk business that generates decent, more predictable returns,” Mr Elliott said.

“We have a substantially simpler business that is less focused on dealing with problems and more focused on winning and keeping customers.”

The bank also warned the low interest rate environment was expected to persist for some time and would place downward pressure on its net interest margin.

Shareholders also probed the bank on its stance on climate change and commitment to net-zero emissions despite ongoing lending to the fossil fuel sector.

Mr O’Sullivan said ANZ would work with its top-100 emitting customers to bolster transition plans to a low-carbon economy.

“At the heart of our climate strategy, however, is a dialogue with our customers,” he said.

“We will encourage and support our top-100 emitting large corporate customers to identify climate risks and opportunities, create transition plans and report publicly on their progress.”

ANZ in October pledged by 2030 it would not finance any new thermal coal plants or mines.

Originally published as ANZ warns economic struggles will continue into 2021 due to global pandemic