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ANZ Warns on Bad Debts
World Economy

ANZ Warns on Bad Debts

Australia and New Zealand Banking Group boss Mike Smith says the bank can’t count on improving credit quality to boost its profitability from here on in, as tough economic conditions lead it to focus on keeping costs under control.

Smith said ANZ was at the bottom of its bad and doubtful debts cycle, but he doesn’t expect a significant decline in asset quality any time soon, Yahoo Finance reported.

“The question to ask is: Are we at the bottom of the cycle? And I guess the answer to that is: Yes,” he said.

“Is it going to get significantly worse? I don’t think so, but it is not going to get better.”

Falling bad and doubtful debt charges have been a key driver of the big four banks’ profit growth in the past few years, and analysts have warned a deterioration in credit quality could hurt returns.

ANZ on Tuesday unveiled a $5.4 billion cash profit for the nine months to June 30, up 4% from a year ago. But the bank increased its provision charge–the amount of money it sets aside to cover bad debts–by 13% to $877 million for the period.

Chief financial officer Shayne Elliott said the increase was driven by the weakness in the resources and agribusiness sectors.

He also said there had been a small rise in home loan arrears in Queensland and Western Australia.

Smith said the bank–which operates in Australia, New Zealand and Asia–was facing tougher economic conditions in its key markets. That’s prompted a greater focus costs.

“Economies in our key markets have slowed a little compared to previous years and global conditions remain challenging,” he said.

“In these circumstances, we are continuing to sharpen our focus on the management of capital and on the control of expenses.”

He also defended the bank’s recent $3 billion capital raising, which saw ANZ’s share price dive 7.5% in one day earlier this month.

The move caught the market by surprise, given Smith had recently indicated no raising was necessary.

Retail shareholders were angered by the preferential treatment given to institutional shareholders, who accounted for $2.5 billion of the money raised.

 

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