Investment analysts yesterday issued earnings upgrades for ANZ after the bank confirmed it had sustained momentum in mortgage volumes in the December quarter and incurred only a slight uptick in loan write-offs.
ANZ’s share price rallied strongly after details of the quarterly financial performance were lodged with the ASX on Monday morning.
The share price rallied close to a five-year intraday high but tapered in afternoon trading to close up 1.3 per cent at A$28.04.
The upbeat trading update prompted several broking houses to raise earnings forecasts, including Goldman Sachs which boosted its 2024 cash profit estimate by almost 3 per cent.
Goldman Sachs chief banking analyst Andrew Lyons upgraded his cash earnings estimate by $197 million, citing lower than expected bad debts.
Lyons now expects ANZ to report a full year profit of $7 billion, which equates to earnings per share (EPS) of $2.24.
Previously, Lyons had been expecting ANZ’s 2024 EPS to land at $2.16.
While ANZ reported a faint rise in non-performing loans in its retail and commercial books, the percentage of aggregate loans that were considered impaired rose by only one basis point to 0.22 per cent in the quarter.
“First quarter bad debts ($53 million charge) were better than what was implied by prior first half forecasts, and we note that while asset quality has continued to normalize, across various metrics it remains better than pre-Covid levels,” Lyons told clients in a research note.
“Asset quality metrics have remained remarkably resilient.”
The arrears disclosures appear to indicate that ANZ’s commercial lending book has been largely untouched by the sharp rise in company collapses in the local construction and property development sectors.
A swathe of medium-sized construction firms hit the wall in November and December and their collective demise is expected to feed into higher bad debt charges at other banks, such as NAB and CBA, which lend more heavily to SME borrowers than ANZ.
Banking Day confirmed with industry sources on Monday that NAB is exposed to Sydney building contractor, St Hilliers, which placed seven operating entities in administration earlier this month.
ANZ’s rapid growth in mortgages throughout 2023 is well documented.
In the December 2023 quarter the bank was the second fastest growing home lender in the country (behind Macquarie) after expanding its mortgage book at more than 1.6 times the industry average.
“Our investment in home loan processing capability and capacity and improved broker experience is providing ongoing benefits,” the bank said in the ASX filing.
“We are continuing to grow our Australian home loan book profitably by continuing to offer reliable turnaround times, and in line with that we are competitive but not market-leading on pricing.”
The positive outlook for group earnings is also being fuelled by higher returns from the institutional banking division.
The bank also signalled that it had continued to lower costs and improve internal efficiency in the first quarter of the 2024 financial year.
“ANZ has demonstrated a proven ability over many years to manage our expenses well and while facing into ongoing inflationary pressures, we continue to execute on productivity initiatives to partially offset these headwinds,” the bank stated in the filing.