ANZ's first quarter tops broker expectations, home loan growth ahead of system

ANZ (ASX: ANZ) posted its first quarter FY23 results on Thursday, producing a strong set of numbers that outlined higher housing and institutional loans, rising customer deposits and a decline in bad debts.

Amid all the doom and gloom about rising interest rates squeezing household budgets, banks appear to be doing well. At least for now.

First quarter FY23 highlights

• Net loans and advances: Australia housing NLAs up $7bn, Institutional NLAs up $11bn. ANZ commercial NLAs broadly flat

  • Group NLAs were $672bn in the September 22 quarter

• Customer deposits: All divisions reported increases

• Provision balance: Increased by $35m in 1Q23 to $3,888m

• Gross impaired assets: Down -22% to $1.1bn; Gross Impaired assets as a % of total Gross Loans and Advances now 16 bps, down from 40 bps in March 2021

• 90+ days past due loans: Continued to fall in aggregate (as a % of total portfolio balances)

With the update in mind, here's a round-up of notes from Citi, Goldman Sachs and Morgan Stanley.

Citi: Equal-weight with $29.25 target

Citi's view: The first quarter disclosure demonstrated "strong trends in both lending growth and asset quality" which "comfortably implies above market earnings, although subject to movements in deductions/reserves."

Key areas to note:

• Total provisions of $83m was "materially better than our expectations for a ~$130m charge" which suggests "better asset quality for longer

• Although the above could also represent the bottom for provisions/bad debts. "We would expect arrears to increase post Christmas in 2Q23

• Growth in mortgages remains "above system" and institutional was "much stronger" and an acceleration against the prior quarter

Goldman Sachs: Neutral with $27.23 target

Goldman's view: The Neutral rating was due to concerns that "ANZ's productivity agenda as a positive differentiator versus peers, and therefore believe it may be vulnerable to the inflationary pressures."

Key areas to note:

• Goldman upgraded its FY23-25 earnings per share outlook due to ANZ's stronger balance sheet momentum, improved operating income and potential for net interest margins to peak at higher levels than originally expected

• ANZ viewed as a leader among the big four banks in housing credit growth (1.7 times system) but a laggard in peers in retail deposit growth (0.4 times system)

Morgan Stanley: Equal-weight with $25.50 target

MS view: A solid result as credit quality remains "very good" and impairment benefit was "better than expected". CET1 (common equity tier 1) ratios were in-line with expectations.

Key ares to note:

• Loan growth of ~4% quarter-on-quarter was tracking ahead of MS forecasts, notably Australian housing was up ~2.5% and institutional up at least 5%

• Impairment benefits was a key standout as "write-backs and recoveries exceeded new and increased charges"

ANZ share price performance over the past year. (Source: Market Index)