ANZ Bank profit falls 28% on higher provisions

ANZ Bank profit slumps 28% in increase in credit provisions

By Paul McBeth

April 29 – Australia & New Zealand Banking Group, the owner of New Zealand’s largest lender, posted a 28% drop in first-half profit as provisions for bad loans soared 98%.

Net profit fell to A$1.42 billion for the six months to March 31, from A$1.96 billion a year earlier, the Melbourne-based lender said in a statement. Provisions for credit impairment rose to A$1.37 billion from A$831 million. Underlying profit rose 4% to A$1.9 billion.

“The action we took last year to significantly increase provision coverage was the right one and we have to deal pragmatically with the effect of continued volatility in global markets on the credit risk charge required for the credit intermediation trades,” said chief executive Mike Smith.

“The expected slowdown in Australia and New Zealand is now playing out with the outlook for provisions in the second half likely to be somewhat more difficult than the first half and we expect that situation to continue through to early 2010,” he said.

Australia’s economy is forecast by the central bank to slide into recession this year, in the face of a global downturn, though the extent of the slump is expected to be milder than for trading partners such as the U.S., U.K. and Japan. New Zealand sank in recession last year and may now be in its sixth consecutive quarter of contraction.

ANZ National Bank, the wholly owned subsidiary and largest banking group in New Zealand, reported a 59% slump in net profit to NZ$168 million for the six months to March 31, down from NZ$413 million in the same period the previous year. Underlying profit sank 31% to NZ$284 million.

The bank estimates its share of the cost to settle with investors in two funds frozen by venture partner ING NZ to be NZ$116 million. It increased its provision for credit impairment to NZ$277 million from NZ$77 million in the previous period, and expects the full-year provisions to be more than double those in 2008.

“The result was negatively impacted by higher credit provisions,” said Australia and New Zealand Banking Group Ltd. chief executive Graham Hodges in a statement. “The deteriorating domestic environment has been aggravated by a sharp slowing in the global growth and the flow-on effects of the global crisis in credit and equity markets.”

The bank said it was aware of the Commerce Commission is investigating the level of default fees charged on credit cards and the level of currency conversion charges on overseas transactions. It noted the regulator is also investigating early repayment charges on fixed rate mortgages and credit contract fees, but could not determine the outcome of these investigations, nor any liability or impact on fees that may occur.

The bank also faces allegations of price fixing and reducing competition in relation to the setting of credit card interchange fees along with Visa, MasterCard and all other New Zealand issuers of these cards. It’s confident it has a strong case but can’t predict the value of any successful claims with certainty.

ANZ Bank’s shares dropped 6.5% to NZ$20 on the NZX today.

(Businesswire)

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