ANZ Flags Share Buybacks After Rise in Annual Profit -- Update

By Robb M. Stewart Features Dow Jones Newswires

MELBOURNE, Australia--Australia & New Zealand Banking Group Ltd. said it would consider directing come of the proceeds from ongoing asset sales toward buying back shares after meeting a regulatory hurdle for capital ahead of the 2020 deadline.

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The prospect of returning capital to shareholders followed solid profit growth for the bank over the last financial year, bolstered by falling costs and reduced credit impairments despite ongoing pressure on margins and weak revenue.

ANZ, one of largest lenders in Australia and New Zealand, has been refocusing on its core banking operations in both countries and reducing its footprint across Asia with an exit from retail banking in an effort to lift returns and exit capital-intensive operations.

The region's major banks continue to benefit from low levels of soured loans and dominant positions in the mortgage market, yet revenue growth has been modest of late and there have been recent signs that the once-booming property market in the biggest cities of Sydney and Melbourne has begun to cool. Regulatory and political scrutiny has also built over the last couple of years, resulting in the need to bolster capital buffers, cool riskier lending and absorb a new tax on liabilities imposed by Canberra.

ANZ on Thursday reported a 12% rise in net profit to 6.41 billion Australian dollars (US$4.98 billion) in the year through September from A$5.71 billion the year before, when it booked charges of more than A$1 billion related to how it accounts for software and for restructuring.

Cash earnings--a measure tracked by analysts that strips out certain items such as revenue hedges and treasury shares--were 18% higher at A$6.94 billion, in line with expectations.

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The growth came despite an about 1% dip in operating income for the year, that was more than countered by a 9% decline in expenses.

The environment for revenue growth is expected to remain constrained in 2018 by intense competition and the effect of regulation, including the Australian bank tax, Chief Executive Shayne Elliott said.

"Our strategy remains to be ahead of the game by focussing on only those areas where we can deliver exceptional customer outcomes, solve real customer needs and in doing so make a decent return for our shareholders," Mr. Elliott said.

He added annual costs across the bank had reduced in absolute terms for the first time since 1999.

Since taking over from long-serving Chief Executive Mike Smith more than a year ago, Mr. Elliott has sought to simplify ANZ's portfolio.

In recent weeks, it struck a deal worth up to US$288 million to sell its stake in a credit card provider in the Philippines and a A$975 million agreement to sell its pensions and financial planning business in Australia. Last year, the bank said it was selling retail and wealth-management businesses in five Asian countries, and followed that up with a deal to exit its asset-finance business in New Zealand and its retail banking operations in Vietnam.

Growth in earnings and a fall in risk-weighted assets in the bank's institutional banking operation helped lift the common equity Tier 1 capital ratio 1 percentage points over the year to 10.6%, ahead of a minimum 10.5% benchmark set by the Australian Prudential Regulation Authority.

Mr. Elliott said the bank had no incentive to "sit on lazy capital," so as it received the proceeds from asset sales it would consider returning capital to shareholders, potentially through a buyback.

The bank again held its dividend steady for the second-half of the year at A$0.80 a share, for an unchanged payout for the year of A$1.60.

ANZ's credit impairment charge for the year was reduced by 38% to A$1.2 billion, with a decline of one-third between the first and second half of fiscal 2017.

Despite moves by ANZ and its peers to lift mortgage rates in the back half of the last year to slow growth in lending to property investors, the bank's net interest margin continued to contract. The margin, a profit measure based on the difference between the rate at which a bank borrows and lends, narrowed to 1.99% for the year from 2.07%, which the bank said reflected lower returns on capital and low-rate deposits, headwinds it expected would reduce over the new year.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

October 25, 2017 18:59 ET (22:59 GMT)