ANZ nine-month profit drops, focus on high returns

[SYDNEY] Australia and New Zealand Banking Group posted a small drop in unaudited nine-month cash profit on Tuesday while revenues slowed as the bank looked at shrinking its balance sheet to focus on high-returning businesses.

Under new chief executive officer Shayne Elliott, The Melbourne-based bank is focussing on cutting costs, restructuring its balance sheet and boosting productivity to protect itself from slow growth and onerous regulatory capital requirements.

Of the four major Australian banks, ANZ is the only one to have developed a large business overseas, predominantly in Asia, but under Mr Elliott it is shifting to refocus at home. However, Mr Elliott reiterated on Tuesday that the current restructuring was not about exiting from Asia.

"What we're doing is really seeing quite a big shift of balance within our balance sheet but we're still growing," Mr Elliott told its in-house publication in an interview.

"But at the same time we need to reduce our exposure to some other sectors. ... That's the right thing to do from a capital efficiency point of view and to drive our returns a little bit harder." The shift has helped ANZ lower risk-weighted assets in its institutional business, leading to a stronger-than-expected Tier-I capital ratio of 9.7 per cent, said Omkar Joshi, investment analyst at Watermark Funds Management.

However, higher bad debts continued to weigh on earnings, with impaired assets rising 1.9 per cent quarter-on-quarter.

Cash profit fell 3 per cent to A$5.2 billion (S$5.36 billion) for the nine months ended June 30, ANZ said in a limited trading update without disclosing comparable year-ago numbers or third-quarter profits.

Australia's No 4 lender in May posted its biggest half-yearly decline in cash profit since 2008 to A$2.78 billion.

Net interest margins, a key gauge of profitability, were stable during the period but ANZ flagged margin pressures in its retail and commercial businesses. "The result was lighter than expected," Mr Joshi said.

"However, the capital ratios are starting to improve materially as the institutional business is rebalanced."

Shares in Australia's highly profitable major banks have grossly underperformed the benchmark index so far this year, weighed by concerns about the impact of stricter capital rules, rising bad debts and slowing earnings growth after years of record profits.

ANZ shares are down nearly 8 per cent this year compared with a 4.6 per cent increase in the S&P/ASX200 index. On Monday, they ended 1.8 per cent higher at A$25.70 each.

REUTERS