Investing.com - ANZ Group Holdings Ltd (ASX:ANZ) has announced a record full-year cash profit of A$7.4 billion on Monday, marking a 14% increase from the previous year. This surge was primarily fueled by the bank's strategic expansion into institutional banking for large corporations, even amidst the intense competition in the Australian housing market.
In a reflection of its robust capital position, ANZ amplified its full-year dividend while simultaneously increasing provisions to shield the bank from potential credit losses as economic conditions become increasingly challenging under higher interest rates.
The cash profit marginally missed market expectations, leading to a dip in ANZ's share price as the market opened on Monday morning. A steeper-than-anticipated decline in retail banking margins was a contributing factor, as ANZ prioritized lending growth over pricing to wrestle housing loan market share from its main banking competitors.
ANZ's CEO, Shayne Elliot, stated that the bank had allocated a credit provision of $245 million for the year, foreseeing an increase in credit losses in the forthcoming year due to higher interest rates and market volatility.
Despite a rise in net interest margin in the first half of the year, it shrank in the second half due to ongoing competition in retail banking. ANZ has been one of the most assertive lenders on mortgage pricing this year to reclaim market share.
Operating expenses climbed 6% to $10.3 billion from $9.8 billion a year earlier. ANZ's CFO, Farhan Faruqui, mentioned that the bank is bracing for higher credit costs this year as interest rates hold steady.
ANZ declared a final dividend of 94¢, payable on December 22. However, the final dividend was 56% franked, which was lower than what shareholders anticipated. This lower level of dividend franking mirrors a growing proportion of profits sourced from overseas operations, where the benefits of imputation are not applicable.
ANZ's common equity tier 1 (CET1) ratio of 13.3% was up 16 basis points in the second half of the year, including capital earmarked for the proposed acquisition of Suncorp Bank. The return on equity also strengthened, increasing 54 basis points over the year to 10.9%.
ANZ Plus, the bank's novel digital retail offering, now boasts 500,000 customers and over $10 billion in deposits. Despite a decline in cash earnings in the retail bank, its aggressive pricing strategy aided in growing housing loan balances.
The record profit was primarily propelled by the commercial and institutional banking divisions. Cash profit in institutional banking escalated to $2.96 billion, up from $1.94 billion a year earlier, despite ANZ trimming its institutional customer numbers to concentrate on higher investment-grade businesses. The Australian commercial division also delivered impressive returns with an 11% revenue growth over the year.