ANZ grapples with NZ capital requirement question
AUSTRALIA and New Zealand Banking Group has the vexed New Zealand question top of mind, with the capital proposals of transtasman regulators a particular focus for the lender.
Its New Zealand net profit fell 8% to $1.83 billion in the 12 months to September 30, as fairvalue movements on financial instruments and insurance policies, and yearearlier gains on asset sales pushed the bottom line around.
Cash earnings from continuing operations fell 4% to $1.53 billion, as New Zealand’s biggest bank lifted its provisioning for bad debts to $92 million from $6 million a year earlier. It also faced a 5% increase in operating costs to $1.33 billion as compliance expenses mounted.
Group chief executive Shayne
Elliott described New Zealand’s performance as a solid underlying result in an increasingly competitive environment.
‘‘Compliance and remediation costs contributed to higher operating expenses. This was mainly driven by the complex work required to comply with new regulatory standards that all subsidiary banks be able to operate as standalone entities,’’ he said.
ANZ is dealing with both the Australian Prudential Regulation Authority and the Reserve Bank of New Zealand on proposals that could lift the amount of capital needed to be held by the Kiwi subsidiary. The lender said the outcome was uncertain, and the board would consider capital management options once the changes were known.
‘‘Capital efficiency will remain a focus, particularly as we manage the proposed changes impacting our business in New Zealand,’’ Mr Elliott said.
‘‘While these changes are not final, we are starting from a strong capital position with solid organic generation capability.’’
The issue is big enough for ANZ to include resolving its New Zealand challenges as third on the list of a sixpoint plan. While the looming changes to capital requirements are the principal issue talked about, an investor presentation slide also notes the Reserve Bank’s policy to limit outsourcing by local bank subsidiaries to their parent companies. New arrangements due by 2022 are another complication.
The New Zealand banking division contributed about 22% of ANZ’s group cash earnings from continuing operations of $A6.47 billion ($NZ6.94 billion). — BusinessDesk