* H2 underlying profit A$3.04 bln vs A$2.95 bln consensus
* Core tier I capital at 10 pct
* Final dividend of 79 cents/share
* Says operating environment tough
(Adds fund manager comment, details, shares)
By Narayanan Somasundaram
SYDNEY, Oct 25 Australia and New Zealand Banking
Corp beat earnings forecasts to post a third straight
year of record profits, aided by cost cuts, but a rise in bad
debt charge underlined the challenge facing Australia's banks.
Australia, among the few developed countries to avoid a
recession during the global financial crisis, is coming under
pressure from slowing Chinese growth, which is weighing on the
mining sector that has so far helped shield its economy.
The country's "Big Four" banks -- ANZ, National Australia
Bank, Commonwealth Bank of Australia and
Westpac -- will still post a combined record profit of
more than $25 billion in 2011/12, but growth has slipped to a
three-year low and bad debts are rising as the economy cools.
"Bad debts provisions are showing a clear upward trend, a
product of the economic environment. One wouldn't want that to
develop in a deeper problem going forward," said Angus Gluskie,
chief investment officer at White Funds Management, which owns
ANZ shares fell about 0.8 percent in early trade in a flat
overall market as investors focussed on falling net interest
margins and rising bad debt charge in a result that otherwise
just topped expectations.
ANZ, which aims to earn nearly a third of its annual profit
in Asia by 2017 as Australian growth slows, reported underlying
second-half profit of A$3.04 billion ($3.14 billion), compared
with A$2.83 billion a year ago and A$2.95 billion expected by
Full-year underlying profit, which excludes one-offs,
non-cash accounting items and investment gains or losses, was a
record A$6.01 billion.
"The results demonstrate continued progress with our
super-regional strategy, while also adapting ANZ to the lower
growth environment where tight management of costs and capital
is increasingly important," Chief Executive Michael Smith, the
architect behind the bank's Asian strategy, said in a statement.
Asia Pacific, Europe and America business, which is
primarily drawn from its Asian expansion, boosted underlying
profit by 28 percent, with Asia Pacific contributing about 20
percent of the bank's revenue.
ANZ said second-half bad debt provisions on an underlying
basis rose to A$686 million from A$551 million a year ago,
echoing a hike in provisions last week by larger rival National
NAB is due to report its earnings on Oct 31, followed by
No.3 lender Westpac Banking Corp on Nov 5. Commonwealth
Bank of Australia updates markets on its first quarter
on Nov 7.
WEAKER MARGIN, TIGHTER COST
ANZ said its net interest margin, a key measure of core bank
profits, slipped 3 basis points, excluding the global markets
division, as intense competition for deposits among banks,
racing to meet new global bank liquidity rules, jacked up rates.
Margins fell for institutional banking, which includes trade
finance, markets business and transaction banking, due to market
weakness and as customers moved to low risk assets.
Lending grew 8 percent while deposits grew 12 percent, as
Australians turned to saving in turbulent times.
In the broader industry, bank lending is currently tickling
up at an annual rate of about 4 percent, compared with an
historic average of over 10 percent.
ANZ said overall costs were flat from the preceding six
months period as it cut employee numbers by about four percent
The bank announced a dividend of 79 Australian cents per
ANZ shares have risen about a quarter so far this year,
making it the second-best performer among Australia's big four
banks. The broader market has climbed 11 percent.
($1 = 0.9676 Australian dollars)
(Editing by John Mair and Richard Pullin)