The Australia and New Zealand Banking Group (ASX: ANZ) share price will be on watch on Wednesday following the release of its half year results.
Here's how the banking giant performed during the six months to March 31 compared to the prior corresponding period:
- Statutory profit after tax fell 5% to $3,173 million.
- Cash profit from continuing operations rose 2% to $3,564 million.
- Return on equity increased 16 basis points to 12%.
- Net interest margin down 13 basis points to 1.79%.
- CET1 ratio up 45 basis points to 11.5%.
- Fully franked interim dividend maintained at 80 cents per share.
Overall, I felt this was a solid half from ANZ given the tough trading conditions that it has faced since the Royal Commission. It also appears to be in line with the market's expectations.
Cash profit from continuing operations increased $71 million or 2% on the prior corresponding period. Though, some of this was the result of foreign exchange movements. Excluding foreign currency translation movements, cash profit increased $42 million or 1%.
A key driver of this profit growth was a reduction in operating expenses during the half. Operating expenses decreased $108 million or 2% thanks to a reduction in staff numbers, lower restructuring expenses, and a reduction in expenses following the sale of OnePath Life (NZ) and its Asia Retail and Wealth businesses.
Another smaller driver was a $15 million or 4% decline in credit impairment charges. This was the result of lower individually assessed credit impairment charges, partially offset by higher collectively assessed credit impairment charges.
Offsetting some of this was a reduction in its net interest margin (NIM). ANZ's NIM fell 13 basis points due to growth in lower margin Markets Balance Sheet trading activities, higher funding costs, changes in asset mix, asset price competition, and the sale of the Asia Retail and Wealth businesses. This was partially offset by higher deposit margins and home loans re-pricing.
ANZ's Chief Executive Officer, Shayne Elliott, appeared to be reasonably pleased with the bank's performance, though he did acknowledge that it got some things wrong.
He said: "The work started in 2016 to simplify our business and strengthen our balance sheet has helped us weather the strong headwinds in Australian retail banking, while still producing a balanced financial outcome for shareholders."
Before adding: "Home loan demand in Australia has slowed significantly and this continued during the half. While our decision to step back from certain segments compounded this impact, being more risk averse in the current environment is prudent. However, we do accept we could have done a better job implementing our new risk settings and are taking steps to improve processes."
Looking ahead, Mr Elliott appears cautiously optimistic on the bank's prospects.
Although retail banking in Australia is expected to remain under pressure for the foreseeable future, the bank's Institutional business "is performing well and positioned to provide positive earnings diversification, which will partially offset the headwinds in other parts of the Group."
Should you invest?
Whilst things certainly aren't easy for ANZ, I believe it could still be a good option for investors that have limited exposure to the banks due to its cost cutting opportunities and strong capital position.
All in all, I would choose ANZ ahead of rivals Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), and Westpac Banking Corp (ASX: WBC) at this stage.
