Reporting Season

ANZ margins on-track to hit all-time lows

Mon 07 Feb 22, 1:35pm (AEST)
ANZ banks

Key Points

  • ANZ margins will re-test recent lows amid intense home loan competition
  • The bank typically reports its half-year results in the first week of May

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.

Everything hurts 

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. 

Better days ahead

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.

What brokers think 

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.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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