ANZ (ASX: ANZ) is one of the largest banks in Australia and New Zealand and is the fifth largest publically listed company in Australia. ANZ has a market capitalisation of A$78.35 billion.
What are the results from ANZ 2019 full year (full-year ended 30 September 2019) report?
- Statutory Profit after Tax for full-year 2019 is $5,953 million, down 7% from the previous year.
- Cash profit (continuing basis) for full-year 2019 is $6,470 million, in line with the previous year.
- Earnings per share (cents) for full-year 2019 is 227.6c, up 2% from the previous year.
- Dividend per share (cents) for full-year 2019 is 160, in line with the previous year.
What were the drivers of this result?
ANZ management notes that 2019 was a challenging year for the ANZ. These challenges stem from a slowing of domestic and global economic growth, increased competition, regulatory change and global economic and political uncertainty.
One particular point is ANZ net interest margin decreased from 180 bps in 1H19 to 172 bps in 2H19. This reduction in the net interest margin is due to the RBA reducing interest rates in the second half of 2019.
What is the outlook for ANZ?
The outlook for ANZ is neutral. ANZ management notes:
The Australian housing market is slowly recovering, however, we expect challenging trading conditions to continue for the foreseeable future.
Additionally, a number of regulatory changes could affect the profitability of ANZ in the future. Firstly, on 5 June 2019, APRA announced that banks have to test a borrower’s ability to repay a loan at 2.5 percentage points above the standard variable rate instead of at 7.25% made in 2014. This is positive news for ANZ, as it should allow ANZ to provide additional credit for the housing sector. Secondly, on 9 July 2019 APRA announced an easing of future capital requirements for the major banks. The original proposal was for the major banks to increase their capital requirement by 4 to 5 percentage points over a few years mainly by raising additional Tier 2 capital. Following a consultation period with the industry, APRA has relaxed this proposed requirement with the major banks now required to increase their capital requirements by 3 percentage points by 1 January 2024 mainly by issuing additional Tier 2 capital. This is a positive development for ANZ as it provides them with a smaller constraint on increasing lending (ie, credit growth) relative to APRA’s original proposal.
Overall, Australia’s banking sector is on a double-edged sword. On one edge, availability of credit to consumers and businesses should increase due to low-interest rates and an easing in lending regulations and capital requirements. However, on the other edge, the net interest margins for the banks could be squeezed even more causing a negative effect on profitability.
What is the market reaction?
The initial market reaction ANZ 2019 full-year results is negative. ANZ share price is down around 3.5% and is currently trading at around A$26.70 (11.40am, 31 October). ANZ has a P/E ratio in the low-teens and an annual dividend yield of 5.7 per cent (fully franked).
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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