SYDNEY (Reuters) - Australia and New Zealand Banking Group Ltd (ANZ.AX) booked an 18 percent jump in annual cash profit on lower bad debts and cost cuts, but warned that finding revenue growth was getting harder.
The earnings rebound has been driven by efforts to slim down as the country’s no.3 lender retreats from Asia and hones its domestic focus on core units. The divestments also come amid a broader trend of Australian banks quitting scandal-hit divisions to boost capital.
Rhett Kessler, a senior fund manager at Pengana Capital, a long term ANZ investor, said that while the results didn’t have any “sugar hits”, he thought that ANZ management had made a good start to transforming the business and tackling big issues.
“This is a management team in my view that has done a lot of M&A and that’s non-trivial, dealt well with a lot of difficult public and government issues and at the same time delivering on their cost objectives.”
Annual cash profit, which excludes various one-off items, came in at A$6.9 billion ($5.3 billion), snapping back from a slump the previous year - a five year profit low - when it booked A$1.1 billion in restructuring charges and saw a spike in bad loans.
The banking sector, however, faces many headwinds and Chief Executive Officer Shayne Elliott said he expected revenues to be constrained in 2018 due to fierce competition, regulatory pressure and the full year impact of a new Australian bank tax.
“For the industry, the first thing people want to focus on at this part of the cycle is revenue growth or the lack thereof,” he said. “The reality is it is hard out there (and) revenue growth is a little bit harder to come by.”
Shares in ANZ were down 1.5 percent in late trade, compared with a flat broader market.
The earnings results were somewhat softer than expected, with statutory net profit at A$6.4 billion, compared with an average analyst estimate of A$6.9 billion.
It lowered provisions for bad loans by 38 percent to A$1.1 billion and also saw costs fall due to divestments. Some analysts said they were disappointed that more progress on cost reductions were not being made.
The bank appears “to be struggling to meaningfully achieve absolute cost reductions at a time when revenue is in decline,” analysts at Citi wrote in a note to clients.
Elliott also said ANZ expected to announce details in the next few days of a settlement it reached with the country’s securities regulator which has accused the bank of manipulating the bank bill swap rate. ANZ will disclose the terms of the settlement, the financial impact, and “what the admissions say,” he said.
He added that the impact in the current financial year would be immaterial.
ANZ recently sold a stake in Philippines-based Metrobank Card Corp and split its wealth management business to sell the pension unit to IOOF Holdings (IFL.AX) for A$975 million.
The bank continues to have “meaningful conversations” with suitors to exit its insurance and wealth management operations, Elliott added.
Reporting by Paulina Duran; Additional reporting by Shashwat Pradhan in Bengaluru; Editing by Byron Kaye and Edwina Gibbs