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ANZ Banking Grp: Sharp Fall HY20 Earnings And Dividend Payment Deferred

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Australian and New Zealand Banking Group (ASX: ANZ) is one of the largest publicly listed banks in Australia. ANZ’s business mainly focuses on providing banking and financial services in Australia and New Zealand. ANZ has a market capitalisation of A$47 billion.



What are the HY20 result?

ANZ reported cash earnings of $2,451 million excluding large notable items of $1,035 million. This represents a fall of 24.6% compared with HY19. This result was mainly driven by higher credit impairment charges. Cash earnings (excluding large notable items) for the Australian retail and commercial business fell 24%, the institutional business fell 27% and the New Zealand business fell 16%. Large notable items include Asian associated impairments ($805 million) customer remediation ($91 million), restructuring costs ($74 million) and lease related items ($58 million).

Interest Margin declined 3 basis point to 1.69%. This reflects repricing in the both the asset and liability sides of the balance sheet and competitive pressures in the industry. Underlying expenses increased by 0.8%.
The total provision charge for HY20 was $1.7 billion, up from $402 million in HY19. This includes a collective provision charge of $1.0 billion, taking the collective provision balance to $4.5 billion, which compares to $2.5 billion before the adoption of AASB 9 in September 2018. ANZ management notes that the increase in CP has been driven by a deterioration in economic forecasts as a result of COVID-19, not by customer downgrades or increased delinquencies.

ANZ’s Tier 1 capital position at 31 March 2020 is 10.8% compared with 11.5% at 31 March 2019.

ANZ announced that it will defer a decision on the HY20 dividend until there is greater clarity regarding the economic impact of COVID-19. ANZ management notes that in assessing options, ANZ considered the high level of uncertainty in the economic outlook as well as guidance from the Australian Prudential Regulation Authority that all banks and insurers should consider lowering dividends until the outlook is clearer.
The ANZ Board will carefully consider all factors over the coming months and continue to assess the evolving situation, including the severity of community lock-downs, before determining a final position on the interim dividend. ANZ will provide an update as part of a trading update in August 2020. This suggests that a decision on the dividend has been deferred to August 2020.

How do NAB and ANZ compare?

ANZ’s and National Australia Bank (ASX: NAB) HY20 results are very similar in respect of earnings, the magnitude of the impairment charge, the small fall in NIM and flat expenses. A key difference in strategic approach to managing issues associated with COVID-19 is that ANZ has decided not to raise additional capital at this point in time while NAB decided to raise $3.5 billion in new capital, and ANZ decided to defer its dividend payment while NAB decided pay a dividend payment of 30 cents per share (but down from 83 cent per share in the previous period). It will be interesting to see how this difference in strategic approach to COVID-19 issues plays out in the months ahead.

What is the market’s reaction?

ANZ’s share price is down by around 1.4% post announcement of its HY20 results compared with a rise of 1.2% in the broader market. While ANZ decided to defer its dividend payment, it seems that the market is not overly surprised by this decision.



This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
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ASR has no position in any of the stocks mentioned.

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