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Provisions fall as profits improve for ANZ, Westpac

Friday 20th August 2010

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(BusinessDesk) – Australia & New Zealand Banking Group and Westpac Banking Corp. reported improving profits and lower provisioning in their New Zealand businesses, in line with a recovery in their Australian and global businesses for the nine months to June 30.

“New Zealand business profitability is recovering well from the lows of the second half of 2009 and first half of 2010,” said ANZ chief executive Mike Smith, in a statement.

“While the lagged benefit of repricing the fixed rate book has seen a small improvement in margins, head winds from higher funding costs, both for wholesale and deposits, remain significant.” 

Costs were being contained and the need to make new provisions for bad loans was moderating, especially in retail lending, while the New Zealand institutional banking arm’s overall result was down, thanks to lower global revenue and investment in the institutional banking franchise during the year.

Prior to those costs, reduced institutional provisioning saw profit before provisioning up on the previous period, although ANZ released no New Zealand segment figures.

Global market income was down in part because conditions in 2010 had been “less conducive to customer hedging of both foreign exchange and interest rates”, while increased competition for that business has reduced margin spreads. Those “challenging conditions” were continuing, the bank said.

Meanwhile, Westpac New Zealand showed the local arm of the Australian bank producing flat earnings at 0.5% return on average total assets, although the headline net profit of $213 million was up on $188 million for the nine months to June 30 last year.

Growth in total assets slowed to 1% over the prior corresponding period, to total $55.2 billion. Total individually impaired assets of $760 million were down from $832 million for the same period last year, and represent 1.4% of total assets (1.5% at June 30 last year), while total individual credit impairment allowance of $232 million was well down on the previous year, representing 30.5% of total impaired assets.

For the ANZ group as a whole, underlying profit after tax for the nine months was approximately A$3.6 billion, up 26% on the prior corresponding period, driven by modest growth in business earnings and reduced provisions, offset by lower global market income and exchange rate impacts.

Profit before provisions was up 5% on the same period a year earlier, at A$6.5 billion.

“Group margins (exclusing global markets) have increased modestly but growth is slowing, with higher funding costs and intense competition, especially for deposits,” said ANZ’s Mike Smith.

“While economies around the world are growing at different speeds, the improving economic cycle is continuing to see ANZ’s provisions trend lower.”

The global economic outlook was “unusually uncertain”, and there would be no quick rebound.

“Banks around the world are facing permanently higher costs,” said Smith.

“These include continuing pressures on wholesale funding and rates for deposits have never been so high compared to short-term wholesale rates.”

During the latest quarter, ANZ completed the purchase of Royal Bank of Scotland assets in six Asian countries. The integration process was under way, customers appeared to be accepting the ANZ brand name, and there had been “no surprises” so far.

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