April 29, 2020 / 10:09 PM / a month ago

ANZ halts dividend as loan-loss charges push first-half profit down 60%

SYDNEY (Reuters) - Australia and New Zealand Banking Group Ltd (ANZ.AX) deferred its dividend decision and posted an almost two-thirds plunge in first-half profit on Thursday, as loans-loss charges escalated due to the coronavirus pandemic.

FILE PHOTO: An ANZ bank logo is pictured in Sydney, Australia April 23, 2018. REUTERS/Edgar Su/

After maintaining an 80 Australian cents-per-share interim dividend since 2016, ANZ is the first of the “Big Four” banks to heed the regulator’s directive to defer the distribution of capital to investors until there is greater clarity regarding the economic impact of COVID-19.

Earlier this month, National Australia Bank Ltd (NAB) (NAB.AX) decided to raise extra capital and still pay out more than A$850 million ($556.50 million) in dividends, fearing investors who depended on the income could dump the stock.

ANZ, Australia’s fourth-largest lender and one of the better capitalised banks after recent divestments, said it would update investors about its dividend decision in August.

“The board agrees with the regulator’s guidance that deferring a decision on the 2020 interim dividend is prudent given the present economic uncertainty and that making a decision at this time would not have been appropriate,” ANZ Chairman David Gonski said.

“This decision is not about our current financial position and ANZ has not received any concerns from APRA regarding our level of capital,” he said, referring to the Australian Prudential Regulation Authority.

LOAN-LOSS CHARGES

The Melbourne-based lender posted a 60% fall in first-half cash profit as loan-loss charges surged A$1.7 billion, or 0.53% of gross loans, four times higher than in the previous half and higher than analyst expectations.

The provision charge was also higher than NAB’s but lower than that of Westpac Banking Corp (WBC.AX) at 0.62% of gross loans. ANZ also took a A$815 million impairment hit related to Asian associates PT Bank Pan Indonesia Tbk (PNBN.JK) and AMMB Holdings Bhd (AMMB.KL).

Cash profit, which excludes one-off and non-cash accounting items, fell 60.3% to A$1.41 billion, lower than the A$2.30 billion average of seven analyst estimates in a Reuters poll.

UBS analysts said the deferral was “prudent until there is more certainty on the outlook for the economy and asset quality.”

ANZ shares were 1.4% higher on Thursday afternoon, lagging a broader market that was 2.4% higher.

CORPORATE LENDING SURGES

ANZ’s common equity tier 1 ratio fell to 10.8% as at March 31 from 11.4% in September, partly driven by a 13% increase in corporate lending, as businesses borrowed by the most in three decades in March to stockpile cash to see them through the coronavirus crisis.

The bank said higher cost of capital, higher funding costs and elevated fees had all been passed on to customers that have drawn down on credit lines.

“Importantly, we were pricing each of these facilities on a higher cost of capital than we had done previously,” Chief Executive Shayne Elliott told analysts.

“I would also emphasise that we priced these on a stand-alone loan basis, not under the understanding that we would get additional cross-sell.”

Australian banks, grappling with hefty compensation costs after years of financial misconduct and record-low interest rates, are trying to protect profit margins, as a nationwide lockdown to contain the virus threatens to raise unemployment, lower property prices and cause more bad loans.

Regulators have urged banks to delay dividend payouts or use buffers like dividend reinvestment plans to ensure they have sufficient capital to continue essential functions.

Reporting by Paulina Duran in Sydney and Shriya Ramakrishnan in Bengaluru; Editing by Stephen Coates and Christopher Cushing

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