* H1 cash profit A$3.51 bln vs A$3.4 bln analysts' fcasts
* Net interest margin narrows to 2.15 pct, lowest in 6 years
* Shares fall as much as 1.8 pct after H1 results
(Adds details on falling margins, comment from bank exec,
By Swati Pandey
SYDNEY, May 1 Australia and New Zealand Banking
Group Ltd saw half-year net interest margins drop to
their lowest level in six years, in a sign that competition for
low-risk mortgages could be crimping the profitability of
Australia's Big Four banks.
ANZ, Australia's No. 3 lender, expects net interest margins
(NIM), a key gauge of a bank's profitability, to remain largely
flat but cautioned about competition putting pressure on the
bank's Australia business.
NIM for the half-year to the end of March narrowed 9 basis
points to 2.15 percent, its lowest point since 2008, dragged
down by commercial lending and international and institutional
"Pretty aggressive competition for limited asset growth is
seeing banks cut prices on lending more than their cost of funds
is falling with margins declining. I think you will see that
across all banks," said Brian Johnson, an analyst with CLSA.
To be sure, even with these competitive pressures and
steadily falling interest margins Australian banks are on track
for a sixth year of record profits, bolstered by low interest
rates which are encouraging borrowers and shrinking costs
associated with bad debt provisions.
Since the 2008 global financial crisis, mortgages and
consumer businesses have generated about 35 percent to 40
percent of Australian bank earnings, making them the primary
driver of profit growth for the "Big Four" - ANZ, Commonwealth
Bank of Australia, National Australia Bank and
Westpac Banking Corp.
Record low interest rates, currently at 2.5 percent, have
filtered through to higher house prices and home building while
boosting household wealth and giving consumers the confidence to
start spending again.
"The part of the business that is under pressure is any
lending to corporations and mostly that is only in Australia,"
ANZ chief financial officer Shayne Elliott told reporters.
"But that's a small part of our overall business. We don't
see any major decline in group NIMs in future," he added.
ANZ kicked off bank earnings on Thursday, posting 11 percent
growth in half-yearly cash earnings, helped by a 43 percent jump
in international and institutional banking in Asia-Pacific,
Europe and the Americas.
Cash profit, a measure that excludes one-off items and is
closely watched by industry analysts, was A$3.51 billion ($3.25
billion) for the period, up from A$3.18 billion a year ago and
slightly better than forecasts of analysts polled by Reuters.
So far, the bank's strategy to diversify growth into other
Asian markets has held it in good stead, with a big chunk of
profits coming from outside Australia.
Even so, investors gave a thumbs down to the results.
ANZ shares, which have a market value of about $88 billion,
fell as much as 1.8 percent in early trades. At 0442 GMT, it was
down 1.3 percent at A$34.04.
"Clearly ANZ is starting to pay the price of its high-growth
strategy with mining services-related impairment ticking up and
capital declining 20 basis points," Mike Wiblin, head of
Australian banks at Macquarie Securities Group, said in a note
"In addition, the bank had to rely on further provision
releases and balance sheet 'trading' profits in order to reach
consensus numbers," Wiblin said.
Westpac reports half-yearly results on Monday followed by
NAB on Thursday. Market leader Commonwealth will announce
results for the three months ended March on May 14.
($1 = 1.0793 Australian Dollars)
(Additional reporting by Tripti Kalro in Bangalore; Editing by