Friday 01 May 2020
The major bank has set aside over $1 billion in new credit impairment charges, as it braces for a rise in delinquencies following the expiry of loan deferral periods.
ANZ has released its half-year results for the 2020 financial year (1H20), reporting a 60 per cent plunge in its cash earnings after tax, from $3.5 billion in 1H19 to $1.4 billion.
The earnings slide was triggered by a 76 per cent spike in credit impairment charges, up from $890 million in 1H19 to just under $1.7 billion in 1H20.
ANZ noted that the rise in impairments reflects expectations of a deterioration in credit quality in response to the economic shock caused by the COVID-19 pandemic.
The big four bank has revealed that approximately 11 per cent of its home loan customers have opted to freeze repayments, representing $36 billion (14 per cent) of the bank’s total mortgage portfolio.
Approximately 15 per cent of deferments are for mortgages with an LVR of between 80 to 90 per cent, with 14 per cent of deferments for loans with an LVR exceeding 90 per cent.
However, speaking to investors, ANZ CEO Shayne Elliott said he was not surprised by the volume of loan deferral requests, given the level of uncertainty, particularly at the onset of the crisis.
“That number surged very early on when the deferrals were made available,” he said.
“That was right in the heat of the crisis, right in the beginning. People were scared.”
Mr Elliott said the volume of requests for assistance has since moderated, particularly after the federal government announced its JobKeeper program.
“The number of people applying today has radically reduced. We are starting to see that curve flatten out,” he continued.
“It might change, it may jump again, there might be a second wave, [we] don’t know, but it seems to have settled down.”
The ANZ CEO added that the current share of deferrals is broadly in line with projections for the unemployment rate, which range between 7 to 15 per cent.
However, Mr Elliott acknowledged that some borrowers with deferral periods would likely slip into hardship once the term expires, adding that the bank would actively monitor the financial positions of such customers to manage credit quality risks.
“I think we’re prepared operationally; we’ve got a plan in terms of how to do that, and we’ve also got a plan that assumes there’s no extension of government support and that those people are being asked to come back and repay,” he said.
“All else being equal, and that’s a massive statement in the environment we’re in today, some of those people will not be able to resume repayments. Some of those people would have lost income permanently and will be unable to repay.
“Without further accommodation from the government or APRA, those customers will move into a past due situation with us and potentially receive hardship [assistance] and all those processes we have available to help customers through that.”
ANZ stated that it remains well placed to manage growing risks with adequate capital buffers.
The ANZ board has deferred its decision on the payment of dividends to shareholders to ensure that it retains sufficient capital.
Mortgage portfolio contracts
ANZ’s 1H20 results also revealed that the bank’s mortgage portfolio contracted by approximately $5 billion, from $269 billion in 1H19 to $264 billion.
The big four bank settled approximately $23 billion in loans over the period, however, this was offset by $47 billion in repayments and external refinances.
The number of home loan accounts managed by ANZ dropped from approximately 1 million to 971,000.
The share of broker originated loans as a percentage of ANZ’s overall portfolio remained stable at 52 per cent, but declined as a share of new loans, from 57 per cent to 49 per cent.
In 1H20, ANZ ‘s share of the home loan market slipped to 14.1 per cent.
However, Mr Elliott told Mortgage Business that home loan volumes have spiked over the past six weeks, driven by influx of refinance applications.
“What we've seen surprisingly in the last six weeks is a significant uptick in home loan applications coming through to ANZ,” he said.
“Most of them are refinancing, as you can imagine, there are not a lot of new home loan purchases for obvious reasons.
“But a lot of people, I imagine, are sitting at home thinking 'the future's a little bit more uncertain than it was, we should probably look at where we can save a few dollars here and there’.”
When asked how the bank would strengthen its market position amid growing credit quality concerns, Mr Elliott said ANZ would target low-risk owner-occupied borrowers, less impacted by the current crisis.
“Let's not forget that while it's devastating for too many people in the economy, 90 per cent of people still have a job, and a secure job,” he said.
“[What] we've seen from the credit agencies [is] that the credit enquiries we're getting from people that are actually at a higher credit quality than the marker in general.
“We are being more prudent and we're being more cautious, but actually volumes are holding up pretty well. We actually see a lot of opportunity.”
The ANZ CEO claimed that the bank’s interest rate offerings and an improvement in its turnaround times have spurred the influx in applications.
According to Mr Elliott, ANZ has invested heavily in addressing shortcomings in the home loan approval process.
“We were very upfront that we've screwed up in the past in terms of trying to apply some of the responsible lending policies and we made out processes too slow and cumbersome,” he said.
“We've cleaned all that up, and Mark Hand and the team have done a terrific job in streamlining that and investing in people and technology, and process to get that right.
“We got our assessment times down to within a week and that's where they've stayed. That's really competitive and we're really confident. What's been interesting is that we've been able to maintain that despite a really strong uplift in volume.”
Mr Elliott said he’s expecting the bank to grow its market share off the back of the influx in home loan application, particularly in the owner-occupied segment.
ANZ has also announced the appointment of Emma Gray to the newly created role of group executive, data and automation, effective 1 May.
Ms Gray, who will join ANZ’s group executive committee, currently serves as chief data officer and has led the bank’s data strategy since 2017.
Prior to joining ANZ in 2016, Mrs Gray held leadership roles at Woolworths, most recently serving as chief loyalty and data officer, reporting to the CEO.
Ms Gray has also served as chief strategy officer at Rebel Group and partner at Bain & Company.
In her new role, Ms Gray will be charged with leading the transformation of the “strategic use of data” and creating “new customer insights and driving automation” in a bid to “improve customer experience”.
Commenting on the appointment, Mr Elliott said: “The effective use of data, insights and automation will be a key in preparing the bank for the future, particularly as we respond to the challenges presented by COVID-19.
“Emma is an experienced international executive with significant experience in data and customer insights, and the creation of this new group executive role recognises the critical role of data, insights and automation has in the continued digital transformation of ANZ.”
Ms Gray will report to Maile Carnegie, ANZ’s group executive, digital and Australia transformation.