ANZ profits fall to $3.1bn, expects margin improvements in the second half

ANZ (ASX: ANZ) delivered a rather muted first-half FY22 profit result, down -3% to $3.1bn as the banking industry enters a new era of rising interest rates.

Net interest margins continued to decline in the first-half, down to 1.58% compared to 1.63% a year ago. Higher costs and lower margins on fixed rate home loans were the main culprits.

ANZ kept its interim dividend unchanged at 72 cents, which represents a yield of around 2.6% based on Wednesday's open price ($27.71).

The stock will go ex-dividend next Monday, 9 May and paid out on 1 July.

Expectations were running low

Brokers didn't seem very optimistic about both the banking sector and ANZ in the lead up to its results.

Morgans downgraded ANZ from an Add to Hold on April 28

While Morgan Stanley downgraded from Overweight (Buy) to Equal-weight (Hold) on April 12.

Both brokers acknowledged the narrative of rising interest rates and net interest margin expansion, but chose to adopt a more cautious stance in wake of risks such as market share loss, uncertainty around costs, weaker volume growth and deposit outflows.

Margins outlook

The margins outlook for ANZ might have come ahead of expectations, now expecting "2H22 margins as being slightly positive".

The faster-than-expected trough for margins might be the catalyst behind the 2.1% rise in ANZ shares in early trade.

Source: ANZ 1H 2022 Results Presentation & Investor Discussion Pack

By comparison, Macquarie analysts were previously expecting a potentially lower-than-expected margins trough in 2H22, which leaves less upside for FY23-24.

Pass on rates

The Big Four banks all lifted mortgage rates shortly after the Reserve Bank's 25 bps rate hike yesterday.

The Commonwealth Bank (ASX: CBA) was the first to announce the 0.25% p.a. increase in variable home loans to 4.80% p.a.

Interestingly, CBA and ANZ did not announce any increases for depositors - that's exactly what margin expansion looks like.

ANZ 12-month price chart