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Banking giant ANZ this week posted a significant drop in profit of 42% as it works to cushion itself against an underperforming loan book due to the financial turmoil caused by the pandemic.
The group announced on Thursday that it had posted a 2019-20 profit of $3.7-billion, significantly down on the $6.4-billion for the previous financial year.
ANZ increased its provisions against bad loans, given the reality that far more people and businesses will struggle to pay back their loans in the wake of COVID-19 and its impact on jobs and many categories of business.
“This decrease was primarily driven by full-year credit impairment charges of $2.74-billion, which increased from prior year due to the impact of COVID-19 and a first-half impairment of Asian associates of $815 million, also related to the pandemic,” the bank said.
In his presentation, Chief Executive Shayne Elliot said ANZ had come into 2020 in a good condition.
“We have a strong balance sheet with record levels of capital and liquidity as well as provisions for potential future losses,” Elliott said.
“Events of the last 12 months make it difficult to predict the course of the next year. What I do know, however, is we are in excellent shape to navigate whatever challenges emerge.”
Elliott said his bank’s home loans business performed strongly, with “above system growth” in the owner-occupier market.
“Deposits remained strong as customers took a sensible approach to managing their household balance sheet.”
The market seemed largely unperturbed by profit drop, indicating that it was expected and had already been priced in over recent months.
Ratings agency S&P, for example, noted that the provisions and profit drop were in line with its expectations. ANZ, it said, was now well positioned to absorb the expected defaults on loans.
“We maintain our view that the bank’s capital position is likely to remain strong,” S&P said.
Total loan deferrals have fallen to $71-billion, down from their peak in June of $125-billion.
Australian home loan deferrals have reduced to $51-billion, with about 20% of households extending their deferral period by a further four months and less than 1% transferred to hardship status.