Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy?
ANZ certainly has had a good run since the start of February 2019 with the share price up by 12.5%. ANZ seems to have come out of the Royal Commission quite well, unlike National Australia Bank Ltd (ASX: NAB) which has lost both its CEO and Chairman.
In yesterday's market announcement for the December 2018 quarter, ANZ said that credit quality was stable with a provision charge of $156 million, which was tracking below the FY18 quarterly average. The ANZ Group loss rate was 0.10%, compared to 0.14% in the first quarter of FY18.
ANZ also said that its Group Common Equity Tier 1 (CET1) was 11.3% at the end of the quarter.
For the 12 months to December 2018, Australian home loan system growth was 4.2%, but ANZ's home loan portfolio only grew by 1%. Growing less than the system isn't ideal.
ANZ said that the lower growth was due to ANZ's preference for owner occupier principal & interest lending, which drives faster amortisation. I think this segment is actually the higher quality segment, which is better to aim for.
On this point, ANZ CEO Shayne Elliot said "While we are maintaining our focus on the Owner Occupier segment, we acknowledge we may have been overly conservative in our implementation of some policy and process changes. We are also taking steps to prudently increase volumes in the investor space."
Compared to the other big four banks of NAB, Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA), ANZ seems to be in this best capital position with its good CET1 ratio and undertaking a $3 billion buy-back.
Foolish takeaway
ANZ currently has a grossed-up dividend yield of 8.4%. Compared to most other ASX banks, it has a fairly low dividend payout ratio of 71% of continuing cash earnings, so it would take a significant hit to earnings for the dividend to be reduced.
However, whilst Australian house prices are dropping at an annualised rate of more than 10% I don't think it's wise to buy ANZ shares, or any bank shares.
