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ANZ among biggest beneficiaries of rate rises

ANZ (ASX:ANZ) has joined its big three rivals – Commonwealth (ASX:CBA), NAB (ASX:NAB) and Westpac (ASX:WBC) – in confirming they are the biggest beneficiaries of the Reserve Bank’s 13 rate rises in the past 18 months with a record profit for the year to September.

ANZ reported a cash profit $7.41 billion for the year to September, compared with $6.50 billion a year earlier and shareholders will get a 20% lift in dividends to a record $1.75 a share from $1.46 a year who with the payment of a partly franked final of 94 cents a share. This comprises an 81cps dividend partially franked at 65%, and an additional one-off unfranked dividend of 13cps.

The partial franking won’t be liked by some investors (especially retirees) who have always viewed the big four banks as paying fat, fully franked dividends. This added complication could see some investors sell their shares.

That potential unhappiness among shareholders was recognised by the ANZ which said in Monday’s statement:

“The level of franking reflects the geographically diverse nature of our business, as well as the timing of the proposed Suncorp Bank transaction. The Board recognised that lower franking may not have been anticipated by some shareholders. In recognition of this, and given our strong performance, the Board agreed that the one-off unfranked dividend was appropriate.”

In other words the 13 cents unchanged part of the 94 cents was a bit of a top up to keep shareholders happy (and their tax accountants busy).

Australia’s third-largest lender reported a record annual cash profit after it said it kept a lid on costs in the year while operating in an environment of rising rates – both of which led to growth in lending and in deposits.

ANZ said net interest margin, a closely watched measure that shows the amount banks take in interest payments minus operating costs, rose to 1.70% for the year from 1.63% a year ago – a sign that it has used the rate rises to boost lending rates – especially for home loans – to fatten its earnings line.

“We continued to strengthen our balance sheet and closed the year with provisions for potential credit losses higher than prior to the pandemic, and with more capital than ever before. This is critical as we enter a period of continued high interest rates, rising costs and geopolitical tensions,” ANZ chief executive officer, Shayne Elliott said in the ASX release.

“While our first half was stronger, the second half delivered an outstanding revenue and profit result, demonstrating the benefits of our diversified franchise.”

The ANZ increased its total credit provisions – money set aside for loan losses – by $245 million, citing increased risks associated with rising inflation, higher interest rates and geopolitical tensions.

ANZ’s average deposits and other borrowings increased 6%, or $44.4 billion, driven by growth in term deposits across all of its divisions.

The bank’s Australian commercial division was its highest-returning arm, with revenue growing 11% over the year, while its institutional division posted record results with all three core businesses including transaction banking, corporate finance and markets generating more than $2 billion in revenue each.

On the ANZ’s proposed $4.9 billion takeover of Suncorp’s banking division, Elliott said the bank would be going in front of the Australian Competition Tribunal in a few weeks after the deal was knocked back by the competition watchdog, the Australian Competition and Consumer Commission.

“They’ve given us an indication that they’ll come back with a decision in late February,” he said.

“We’re really optimistic about that. We strongly believe our case is a good one, that this really is in the best interest of consumers.”

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