SYDNEY (Reuters) - Australia and New Zealand Banking Group (ANZ.AX) posted a small drop in unaudited nine-month cash profit on Tuesday but shares jumped more than 3 percent as investors cheered the lender’s commitment to shrink in Asia to boost overall returns.
Under new Chief Executive Officer Shayne Elliott, Australia’s No.4 lender is stepping back from low-returning businesses in Asia and boosting productivity to protect itself from tepid growth and onerous capital requirements at home.
ANZ is the most Asia-focussed Australian bank but has struggled to generate steady earnings from those emerging markets and is now shifting focus back home where returns are stronger.
Investors also took solace from largely stable asset quality after ANZ said its third-quarter individual bad-debt charge of A$1.34 billion was in line with the average of the first-half.
“Basically it hasn’t got worse. I think that’s a good outcome for ANZ at this stage,” said Matthew Asquith, Melbourne-based banking analyst at Lonsec.
“Another positive was just the momentum in reducing that Asian institutional exposure.”
ANZ shares were the top gainer on the S&P/ASX200 index on Tuesday, adding 3.3 percent to A$26.54. The benchmark index was up 0.2 percent.
Cash profit fell 3 percent to A$5.2 billion ($3.98 billion) for the nine months ended June 30, ANZ said, without disclosing comparable year-ago numbers or third-quarter profits.
Net interest margins, a key gauge of profitability, were stable during the period.
The Asian draw-down has helped lower risk-weighted assets in ANZ’s institutional business, leading to a stronger-than-expected Tier-I capital ratio of 9.7 percent, said Omkar Joshi, investment analyst at Watermark Funds Management.
The strategy will help ANZ strengthen its balance sheet to meet strict new capital rules, the Melbourne-based lender said on Monday, when it also flagged the need for more cash following a regulatory change to the treatment of mortgages.
While investors have welcomed the renewed focus on ANZ’s core domestic operations, Elliott said there would be no wholesale withdrawal from Asia.
“It’s absolutely not about getting out of Asia. It’s really just about finding ... those segments and areas that are doing well,” he told the bank’s in-house publication on Tuesday.
He linked ANZ’s choppy performance in Asia to tumbling commodity prices.
Australia’s highly profitable major banks have grossly underperformed the benchmark index this year, weighed by concerns about the impact of tougher capital rules, rising bad debts and slowing earnings growth after years of record profits.
($1 = 1.3070 Australian dollars)
Reporting by Swati Pandey; Editing by Stephen Coates