ANZ on top form says CEO

ANZ Banking Group chief executive John McFarlane says business is better than expected. Picture / Martin Sykes

New Zealand's largest bank, ANZ National, expects a pick up in the export sector will offset a softer domestic economy next year, allowing it to maintain high single-digit growth in core profitability.

The bank's September year net profit rose 20 per cent to just over $1 billion, boosted by a $137 million reduction in provisions for impaired loans.

Excluding the reduced provisioning, the bank's core pre-tax profit was up 8 per cent.

ANZ National chief executive Graham Hodges was "very pleased" with the result. "We had expected the economy would slow a little bit faster than what it has this year."

However, conditions would likely deteriorate next year. "That means that credit growth, an underlying driver for the performance for our business, is also likely to slow."

The bank's lending volumes increased by 13 per cent over the September year to $78 billion, but Hodges believed they would slow to about 9 per cent growth in 2007.

"It's going to be a reasonably challenging year. That said, we're going to see some switching from less domestic spending and more exporting, so we would hope to be benefiting from our exposure in the foreign exchange and trade and heartland business markets."

That would see ANZ National maintain core profit growth again in "the high single digits".

Hodges said the reduced provisioning in yesterday's result was a rebound from high levels last year due to concerns about its exposure to the pip fruit and other industries.

Meanwhile, ANZ Banking Group chief executive John McFarlane said the New Zealand business was improving sooner than expected after its $5.5 billion acquisition of the National Bank in 2003.

The National Bank retail division showed strong growth with profit before tax and credit impairment charges up 11 per cent. By the same measure the ANZ division showed a modest improvement of 2 per cent. Its profit was constrained by lower non-interest income and the $10 million expense of relocating back-office IT systems to New Zealand to meet Reserve Bank requirements.

Nevertheless, after a long period where ANZ suffered from declining market share and low customer satisfaction, Hodges said the division was "back in the game" with customer numbers growing for the first time in nine years.

ANZ National's overall net interest income rose 8 per cent to $1.98 billion with a decline in net interest margin from 2.55 per cent to 2.34 per cent somewhat offset by increased lending volumes of 10 to 20 per cent across its various divisions - with exception of finance company division UDC where there was a decline of 7 per cent.

That decline fed into a 25 per cent fall in net profit for UDC.

"UDC's results were disappointing, said Hodges ... but "a number of actions" were under way to grow the business' profit.

Hodges declined to comment on Feltex, saying ANZ's loans to the failed carpetmaker had been done out of Australia.