Solid is ANZ's new black

Strong retail performance and surprising loan and deposit growth boosted ANZ Bank's black figures, but the bank's overall tone was one of subdued caution.

"Solid" is the new descriptor for the major Australian banks’ financial performance and, like Commonwealth’s half-year result earlier this week, ANZ Bank has produced a solid first-quarter performance.

In fact that is the term Mike Smith used to describe the 6.2 per cent rise in profit to $1.53 billion.

Given the modest levels of credit growth in the domestic system and soft economic settings, anything more than a mid-single-digit increase in earnings would not only enrage the big bank critics but trigger some warning bells about the levels of risk-taking within the sector.

ANZ, of course, has a somewhat different profile to its peers as a result of its growing presence within Asia. Because today’s announcement was an update rather than a fully-fledged earnings announcement it is short on details but the group did say it had experienced strong revenue growth from its Asia Pacific, Europe and America business within which its Asian banking operations sit.

ANZ’s differentiated strategy and its ambition of being a "super regional" bank means that its performance should increasingly diverge from its peers as its exposure to Asia increases. Something above 20 per cent of its revenues comes from the APEA business.

Year-on-year, ANZ did experience surprisingly strong overall growth in its loan book and deposit base, with average lending assets up 7.6 per cent and average customer deposits up 12.3 per cent.

Like Commonwealth Bank, it also referred to strong results from its global markets activities, where income grew 26 per cent to $544 million. The return of some confidence, stability and activity to global markets after a difficult year for trading last year will add a growth dimension to the banks’ earnings this year.

It was notable in the Commonwealth result that its retail bank had a very strong half, with some growth in demand for loans and improved margins as a result of the "re-pricing" that all the banks undertook last year when they held back slivers of the Reserve Bank’s reductions in official interest rates.

While ANZ said its group net interest margin was flat relative to the end of September and down slightly if global markets were excluded, it also said there had been a "solid" performance from the Australian retail bank and that retail margins had improved slightly, despite asset re-pricing being "largely" offset by deposit mix impacts. The bank also increased market shares in key segments, including mortgages and deposits.

Its wealth management business, which lags its peers, still appears to be struggling to develop any momentum. Smith said ANZ was continuing to "manage" costs in the business while "pacing" investment in its transformation.

All the majors are very focused on their cost bases and Smith said initiatives to manage costs and margins had helped sustain a good performance in its Australian businesses. Overall expenses were slightly down and ANZ was on track to deliver positive "jaws" – the difference in the growth rates of expenses and income – in the March half.

Its results are also being aided by stable asset quality and impairment charges. ANZ said it had experienced a decline in total impaired assets and that new impaired assets were also lower.

Relative to the September quarter last year, corporate 90-plus days past due balances are 20 per cent lower. That would suggest that the surge in impairment charges towards the end of the last financial year has abated.

Overall, as with the Commonwealth result, the tone of the ANZ commentary was relatively subdued and cautious. In the circumstances in which they are operating, that’s reassuring.

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