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Strong earnings gain for ANZ

NZ Newswire logoNZ Newswire 16/02/2017 Paul McBeth

ANZ New Zealand boosted first-quarter earnings 18 per cent, benefiting from cost-cutting and smaller hedging losses, even as its loan book shrank and it faced skinnier margins.

Cash profit, the favoured earnings measure for banks that strips out non-core items, rose to $459 million in the three months ended December 31 from $390 million a year earlier, the Auckland-based company said in a statement. Net profit gained 16 per cent to $403 million.

Net interest income rose just 3 per cent to $773 million as the lender's margins were squeezed due to higher funding costs and greater demand for less profitable fixed rate mortgages. However, other income was up 46 per cent to $266 million, which included a smaller loss in the fair value of the bank's hedging activities, recorded at $11 million compared with $45 million in the same period last year.

Operating costs fell 3 per cent to $364 million as the bank clamped down on spending.

ANZ's New Zealand branch saw net loans shrink to $119.17 billion at December 31 from $120.65 billion at the end of September, though still up from the $115.73 billion a year earlier. Customer deposits rose to $94.34 billion from $91.36 billion three months earlier and $88.19 billion at the end of 2015.

"Net interest margin has contracted due to increased funding costs and demand for fixed rate home lending," the bank said. "The increase in other operating income reflected higher global markets trading income and valuation gains on derivatives."

New Zealand's main banks collectively saw a decline in profits in 2016 due to shrinking margins, largely because they had to turn to international wholesale funding lines to back the rapid pace of credit expansion.

KPMG's latest financial institutions performance survey, publishedon Friday morning, found banks anticipated a reduction in lending this year due to increased use of wholesale funding and the prospect of the big four Australian-owned banks having to send billions of dollars back to their parents to ensure they meet new capital adequacy requirements across the Tasman.

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