House price correction “modest and orderly”: ANZ boss Mike Smith

ANZ chief executive Mike Smith has played down concerns about the subdued housing market by providing measured commentary on the contraction in house prices as the bank reports underlying profit of $4.5 billion for the nine months to the end of June.

The result was up 5.5% on the previous corresponding period, in line with half-year forecasts.

“There has been a correction in housing prices, but frankly this has been modest and quite orderly,” said Smith in a results briefing today.

Smith says the bank is “not running the business on the hope that the subdued lending environment will end anytime soon”.

“We won’t see pre-GFC credit growth anytime soon in the future,” he said, adding that this was the “new norm”.

“We are not seeing anything that surprises us.

“Boring is the new black, and we are happy to be boring.”

Smith reported that lending assets grew by 7.7% over the nine-month period, strengthening ANZ’s funding profile, and he called the overall result a “solid performance”.

“We are upbeat about the business and where it is heading,” he added.

ANZ chief financial officer Shayne Elliott confirmed this subdued outlook, saying credit trends have been “as expected”.

Elliott says the bank’s retail lending book (mortgages) is performing well, “although there has been some stress in our commercial lending book, but this is not having a material impact”.

While big four rival the Commonwealth Bank reported a small contraction on net interest margins on financial products, ANZ said group margins have been stable and Australian margins had increased slightly after declining 13 basis points in first half of the year.

The Australian Financial Review reported that this was a sign that the bank’s contentious decision to adjust interest rates outside of the Reserve Bank of Australia’s cycle on the second Friday of every month was starting to pay off.

However, Smith also acknowledged the decline in customer satisfaction ratings for ANZ – as reported by Roy Morgan – dating to the decision to implement the independent interest rate review.

He said the bank was looking to address this and was working on new initiatives in the Australian network with details to be announced later in the year.

“Market share in traditional banking, household deposits, household lending and commercial has increased despite challenging economic conditions. While asset repricing has been largely offset by deposit pricing pressure the divisional margin has recovered slightly since the end of the first half,” said the bank in a statement.

“The productivity program announced earlier in the calendar year is on track to deliver a half on half decline in expenses. Credit quality is sound and within expectations in both the retail and commercial books including 90 day mortgage arrears which have reduced further from the end of the half.”

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