A double digit jump in ANZ’s first quarter profit has analysts predicting a sixth consecutive year of record earnings for the major banks.
ANZ’s cash profit in the three months to December 31 grew by more than 13 per cent to $1.73 billion, on the back of growth in home lending and a surprise fall in bad debts.
That puts it on target to achieve a full year cash profit of about $7 billion, higher than the previous year’s $6.5 billion.
The bank’s provision charge for bad debts was $191 million in the December quarter, down from $322 million in the September quarter.
Chief executive Mike Smith forecast a 10 per cent fall in the bank’s year’s provision charge for the full year, from the previous year’s $1.2 billion.
“ANZ’s business strategy has also led to ongoing improvements in the quality of our lending book … together with the outlook for continued low interest rates and low levels of corporate leverage,” he said in a statement.
Shares in Australia’s third largest bank by market value gained 65 cents, or 2.2 per cent, to $30.56, outperforming its three rivals.
The fall in bad loans was viewed as a positive economic indicator, signalling businesses were keeping on top of debt repayments due to low interest rates.
Fewer bad debts could also indicate weak demand for loans, but Mr Smith said moderate credit growth was occurring.
Morningstar analyst David Ellis said the result showed the economy was still growing, enabling the major banks to maintain their strong financial positions, which has seen the industry’s profits rise since the global financial crisis.
“If you have moderate credit growth, moderate revenue growth and you keep the rate of cost growth below the rate of revenue growth you’re going to have higher profits,” he told AAP.
“It might be boring, they are not doing anything amazing … they are masters, that’s their specialty.”
Commonwealth Bank will report its half year profit on Wednesday.
Mr Smith said ANZ held a positive outlook for 2014 despite concerns about its exposure to a slowdown in emerging economies through its heavy investment in Asia.
“There remain a number of challenging issues in the global economic environment. However, these are now largely more predictable,” he said.
The bank is forecasting annual revenue growth of between four and five per cent, which is above expected expense growth of two per cent.
It said its net interest margin – a measure of the profitability of its loans – had declined slightly due partly to low interest rates.
ANZ posted growth in customer deposits and home and small business lending in the first quarter, while lending in its business banking and regional business banking divisions softened.