ANZ: Provision up, profit up

Mike Smith

ANZ has increased provisioning by $1.2 billion for the current financial year at the same time as informing the Australian Securities Exchange that it expects profit before the provisioning to be up by around 8 per cent and cash profit to be around $3 billion.

The banking group said that credit impairment costs would remain high in the second half as a result of the ongoing deterioration in global credit markets, a weak New Zealand economy and a softening Australian economy.

It said provisions in the second half were likely to be around $1.2 billion, with $980 million having been provisioned for the first half.

The group said that its collective provision would be reset to above 1 per cent of credit risk weighted assets and this represented a prudent response to the sustained deterioration in the global credit environment and the softening domestic economies in New Zealand and to a lesser extent in Australia.

Commenting on the announcement, ANZ chief executive Mike Smith said the banking group’s underlying business was continuing to deliver a solid performance but added that it needed to recognise “where we are at with legacy issues in institutional and the change in the economic cycle”.

Dealing with the difficult issue of failed broking house Primebroker, Smith said the bank’s institutional portfolio continued to be put under significant stress by a small number of previously identified larger exposures.

He said it was expected individual provisions in the second half would be around $500 million following first half provision of $371 million and recognised further softening in the outlook for some commercial property clients and provisions for Prime Broker Securities and Bill Express.