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ANZ Bank's New Zealand business posts drop in 1H profit; lending volumes subdued

Thursday 29th April 2010

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Australia & New Zealand Banking Group, which owns New Zealand’s biggest lending group, said profit from its local business fell 8% on increased impairment provisions and flat deposit and lending activity.

The Melbourne-based bank’s New Zealand unit posted a profit of $386 million in the six months ended March 31, down from $421 million a year earlier. Its provision for credit impairments rose to $330 million from $291 million.

ANZ’s New Zealand performance lags behind the parent, which today posted a 36% jump in first-half profit to A$1.93 billion, driven by a 33% gain in earnings from Australia. The results highlight the stronger pace of growth in New Zealand’s biggest export market, which skirted recession helped by demand from China for its raw materials. Still, the results in New Zealand are an improvement from the second half of the previous year, when impairments peaked out at $598 million, resulting in a $227 million loss.

“The New Zealand economy has stabilised in a number of areas although the recovery is somewhat uneven at this earl stage,” said ANZ’s New Zealand chief executive Jenny Fagg. “Credit quality is slowly improving, particularly in the retail sector, but some uncertainty remains around the rural and commercial sectors.”

Shares of ANZ Bank fell 2.1% to A$24.32 on the ASX and have bounded up 49% in the past 12 months. Tier One capital was 10.7% at the end of March, while group margin, excluding global markets, rose 3%.

“The scale of the global financial crisis and the depth of the economic downturn in the U.S. and Europe mean we have to be realistic about the outlook,” ANZ chief executive Mike Smith said. “Recovery from events of this magnitude will not happen smoothly.”

The lender has expanded into Asia as part of a five-year plan to become a “super regional bank,” and increased its reach last year with the US$550 million acquisition of RBS Asian assets.

ANZ Bank is among potential bidders for Dallas-based Lone Star Fund's controlling stake in Korea Exchange Bank and Smith told reporters at a briefing that it would be “remiss of us not to look at it,” though the lender hasn’t yet decided whether to bid.

Based on the parent bank’s profit and loss statement by division, profit from Asia Pacific, Europe and the US fell 27% to A$306 million in the first half. ANZ Bank’s institutional business had a 12% gain in profit to A$818 million while New Zealand posted a 35% drop to A$172 million.

“Asia will remain the world’s best performing region with annual economic growth of almost 8% (excluding Japan), which highlights the significance of our super regional strategy,” Smith said.

ANZ Bank will pay a first-half dividend of 52 Australian cents, up 13% from a year earlier.

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