ANZ Bank is on track for full year earnings growth of 17 per cent to another record profit and remains confident about the Australian economy despite volatile financial markets.
Chief executive Mike Smith said ANZ had good earnings momentum in all of its divisions during its third quarter to June 30 – except for the investment markets exposed institutional business.
Mr Smith said credit demand remained weak but business lending was expected to pick up on 2012.
An underlying profit of $1.4 billion was booked in the three-month period to June 30, taking underlying profit for the nine months to $4.2 billion, up 16 per cent from the previous corresponding period.
Underlying profit is the bank’s preferred measure of profit as it takes into account any one-off effects in the value of non-cash assets.
Another $1.4 billion of underlying profit in the final quarter is needed for ANZ to deliver on analysts’ expectations of a full year cash profit of $5.6 billion.
However, profit growth wasn’t enough to please investors, with ANZ shares down 4.5 per cent at $19.50 on Friday amid falls of about 3.5 per cent on the wider share market.
Mr Smith said Europe’s economic woes meant many banks would earn less than their cost of capital and this could provide ANZ with opportunities to further its Asian growth strategy.
“At some stage some of them will probably have to sell their family silver, which is the Asian assets. Well I hope, anyway,” he said.
Despite the woes of many leading economies, Mr Smith remained cautiously optimistic about the economic outlook for the bank’s key markets.
“The Australian economy is in pretty good shape despite the short-term challenges. I am confident about the long-term opportunities for Australia and for New Zealand because of our linkage to Asia,” he said. “Looking through the noise of the last fortnight and even today, it means that I am still optimistic and that I believe that there is still significant upside in our strategy for ANZ.”
ANZ said its margins, a key measure of profit growth, were flat in the third quarter, implying no move from the first half’s 2.47 per cent.
Mr Smith said a similar margin would be reported for the full year.
Margin pressure was coming from competition for deposits, which had weakened in recent weeks, he said, but also lower income from ANZ’s global markets business.
“Clearly this isn’t brilliant, in the sense that the difficult market conditions have actually continued into July and into August,” he said. “But this is something that all banks have been managing over the past few months and we’re no different. So I’m not going to overreact.”
Like its peers, ANZ said deposit growth was outpacing loan growth, with the difference for ANZ in the financial year to June at $14 billion.
Deposits currently provide 61 per cent of the bank’s funding base, up from 50 per cent in 2008, meaning a reduced reliance on volatile and expensive wholesale funding markets.
Impaired assets declined to $260 million as of June 30, while ANZ’s bad debt provision for the nine months to June was $989 million, down 31 per cent from the previous corresponding period.
