Margins at Australia and New Zealand Bank (ASX: ANZ) are on track to hit all-time lows as competition in the mortgage market continues to intensify.
ANZ shares are trading -2.6% lower at noon following a -5.4% plunge after open.
ANZ said its margins in the first quarter declined by 8 basis points, citing “structural headwinds impacting the sector”.
ANZ's last reported net interest margin was in August last year, with figures sitting at 1.65%. An 8 basis point decline would drag the profitability ratio on par with first half FY20 record lows.
In the process of providing retail and business customers with simpler and lower fee options, ANZ will incur a “negative transitional impact on other operating income in FY22 of $140m, spread evenly across the two halves.”
Furthermore, the credit quality environment “remained benign” with the release of $44m in provisions.
This consisted of a “collective provision release of $122m and an individually assessed provision of $78m.”
ANZ flagged that softer trading conditions in October will hurt the company’s institutional markets business. The impact will likely weigh on the segments’ first-half revenue.
ANZ hopes that the “impact of rising rates, predominantly in New Zealand, and recent deposit pricing changes” will help offset at least some of the bank's ongoing headwinds in the second quarter.
Economists at the big four banks are forecasting a potential interest rate hike in August 2022 - a potential margin expansion catalyst.
Two major brokers updated their price targets for ANZ this morning.
Citi - Neutral rating with a $30.25 price target (14.5% upside)
UBS - Buy rating with a $30.00 price target (14% upside)
Both brokers flagged the weaker-than-expected net interest margins and the likelihood that ANZ will miss half-year earnings expectations.
ANZ typically delivers its half-year results in the first week of May.
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