The ANZ bank posted a 4% rise in December quarter cash profit to $1.85 billion with an improvement in its institutional business but with subdued corporate borrowing.
The result puts the bank on track to exceed last year’s weaker than expected $7.2 billion cash profit, a modest rise of just 1%.
Shayne Elliott, who took over as CEO on January 1, says his new management team has been cutting costs and simplifying and repositioning the bank’s business.
The Australian and New Zealand economies are performing well with low interest and exchange rates supporting the transition to more balanced growth following the commodities boom, he says.
“Our performance in the first quarter was supported by strong expense and margin management, and further progress will be apparent in the Group’s financial performance during the balance of the year,” Elliott says.
The retail and small business segments performed strongly but corporate borrowing demand remains “subdued”. The domestic credit environments were stable although there are pockets of weakness associated with low commodity prices.
Statutory net profit was $1.6 billion. The first quarter cash profit was up 5% compared to the average of the third and fourth quarters of the 2015 financial year.
Income grew faster than expenses. Technology investment and wage inflation were largely offset by a 2.5% cut in staff numbers.
However, the net interest margin decreased by 2 basis points.
Retail in Australia and New Zealand saw further market share gains in home lending in key markets.
Small business in both markets grew strongly while corporate banking income was impacted by higher funding costs and competition.
Wealth benefited from stable life insurance lapse rates which were offset by investment market volatility.
Institutional markets income increased 6% to $553 million.
Elliott says Asia economic growth is slowing.
“Our exposure in Asia is predominately short tenor, investment grade lending nevertheless the slowdown in the region and increased market volatility are seeing credit conditions become more difficult in the second quarter,” he says.
“Our business in China remains steady with the impact primarily in manufacturing and trade-exposed sectors in South-East Asia.”
Bad loans for the half year will be broadly similar to the second half of 2015.