ANZ has delivered a stronger than expected third quarter, with cash earnings reaching $1.90 billion as improving margins, lower costs and weaker than expected bad debts helped offset a sharp slowdown in mortgage demand.
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The bank said home loan applications fell 12% since the federal government removed property investment tax concessions, making ANZ the fourth major Australian lender to flag a meaningful deterioration in housing lending demand.
ANZ’s net interest margin increased one basis point to 1.54% during the quarter, while net interest income excluding markets rose 2% compared with the average quarterly result in the first half.
Costs were another positive, falling 3% to $2.75 billion for the quarter, excluding a NZ$125 million class action settlement.
Bad debts also came in well below expectations. ANZ recorded a $102 million charge, compared with analyst forecasts of as much as $205 million, while non-performing loans remained stable despite three Australian interest rate increases this year.
The result initially sent ANZ shares as much as 3.4% higher, outperforming the broader market.
ANZ said lending growth and modestly stronger margins supported the quarter, yet housing demand has weakened following changes to property investment tax concessions. Across the major banks, mortgage applications have reportedly fallen between 12% and 20%.
That comes as Australia’s housing market also loses momentum, with auction clearance rates at six-year lows and average property prices down around 2% over four months, according to Cotality.
For ANZ, the immediate earnings picture remains relatively resilient. The bank finished June with a common equity tier one ratio of 12.51%, providing a strong capital buffer, while the combination of lower costs and subdued bad debts helped support profitability.
For now, ANZ’s third quarter result suggests the bank is managing the slowdown better than feared, but the sharp decline in mortgage applications shows the housing market is becoming a more significant headwind for Australia’s banking sector.
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