ANZ calls for further risk management, despite $6bn profit

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Australia's third-largest bank may have made a healthy profit this year, but the bank has stated that risk management will need to be high on its agenda going forward.

According to ANZ’s Results Presentation &Investor Discussion Pack, which discussed its 2011/12 financial results, it must “continue to be cautious and disciplined in our approach to lending and risk management”.

The warning comes after risk management played a prominent role in the bank’s strong performance over the 2011/12 financial year.

Highlights of its risk management approach included:

Commercial –Risk grade profiles:

  • The Commercial book is well secured with 72% of Commercial lending book being more than 80% secured.
  • Security Indicator (SI) profiles have decreased slightly from Sep-11, reflecting underlying changes in property values.
  • Average Customer Credit Rating (CCR) is stable YOY and has improved slightly from 1H12.

International & Institutional Banking:

  • Well-funded, low risk balance sheet, loan to deposit ratio at Sep 2012 -75%.

Improved credit quality in New Zealand:

  • Reviewed and enhanced risk policies and practices to support sustainable business growth in challenging environment.

Improvements in CommAgri risk profile:

  • Commercial risk management and lending practices embedded into Agri through Credit Pathways training, cashflow analysis, corporate Agri model and business of farming.

A stronger bank

Overall, ANZ’s statutory profit after tax came in at $5.7bn, with its underlying profit for the 2011/12 financial year reaching $6bn. Both were up 6% on the previous year.

“This result continues our track record of delivering on our promises to shareholders, customers, staff and to the community,” said ANZ CEO Mike Smith.

“Over the past five years we have systematically worked in every area of the bank to transform ANZ, delivering on our regional growth aspirations and emerging from the global financial crisis as a stronger, more international bank.”

Annual group highlights included:

  • Profit before provisions (PBP) increased 5% YoY, reflecting group-wide productivity gains, improved performance from the Australia division in the second half, early benefits from the New Zealand simplification program, growth in international and institutional banking – particularly in Asia and an improving contribution from the global wealth and private banking division.
  • The group invested $1.3bn in targeted growth initiatives in 2012, with productivity improvements driving flat expenses HoH and positive revenue/cost jaws YoY and HoH.
  • ANZ continues to increase the diversity of its revenue base with 21% of group revenues derived outside of Australia and New Zealand during 2012. Global markets revenue increased 14% to $1.9bn, with customer sales income up 10% to represent 61% of total income.
  • Net interest margin excluding global markets declined three basis points (bps) from the end of the first half, reflecting increased funding costs in particular from deposits, as well as asset pricing pressure in Institutional.
  • Deposits grew 12%, with lending up 8% (FX adjusted).
  • ANZ continues to have the lowest wholesale funding requirement of its domestic peers. Customer funding comprises 61% of total funding.
  • Return on equity reduced by 60 bps to 15.6%. Benefits from the group’s capital efficiency focus were somewhat offset by higher regulatory capital holdings and reduced earnings on capital in a lower interest rate environment.
  • The provision charge was $1.25bn, broadly in line with 2011. Gross impaired assets declined 7% YoY while the collective provision coverage ratio remains strong at 1.08%.

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