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ANZ gains despite drop in cash profit

AAP logoAAP 8/08/2016 Prashant Mehra

ANZ has signalled it is cutting exposure to low-return businesses in Asia as it looks to boost overall returns amid a slowing growth environment and increasing capital requirements.

Australia's fourth largest lender on Tuesday reported a three per cent drop in cash profit the first nine months of its financial year, but said third quarter net interest margins were stable and bad debt provisions remained in line with the average of the previous six months.

The announcements seemed to ease nerves for investors, who have been wary of ANZ's exposure to emerging markets amid a commodities downturn. ANZ shares were up 72 cents or 2.8 per cent to $26.42, at 1535 AEST.

"Its all down to the market expectation. The numbers are not as bad as the analysts were expecting," Australian Stock Report's head of trading Chris Conway said.

Cash profit fell to $5.2 billion for the nine months to June 30, weighed down by restructuring charges and bad debts. The bank had made provisions of $1.4 billion so for in its financial year.

Profit before provisions rose five per cent for the nine-month period, it said in a quarterly trading update.

The lender in May cut its interim dividend for the first time since the global financial crisis after first-half cash profit dived 24.3 per cent to $2.78 billion. Results for that period were hit by large restructuring charges and higher bad debt provisions.

Under new chief executive Shayne Elliott, ANZ has been focusing on cutting costs and restructuring its balance sheet by exiting riskier assets. Mr Elliott underlined that strategy further on Tuesday.

"There's going to be a little bit of balance sheet shrinkage in Asia at the moment," he said in a statement.

"A lot of that is to do with the fact that commodity prices are down and therefore the value of what we are financing has come down naturally."

However, he ruled out a wholesale withdrawal from Asia.

The bank reported a $15 billion reduction in risk-weighted assets over the nine months to June. It flagged margin pressures in its retail and commercial businesses, but said margins remained stable thanks to gains in its institutional business.

"Overall we see this as a reasonable quarter for ANZ as it continues to transform the organisation. Volumes in its core markets are holding up and cost performance remains a key focus," UBS analyst Jonathan Mott said in a note after the results, but added that ANZ's earnings are expected to remain volatile for the next six to nine months.

Earlier on Monday, ANZ said it may need to raise extra capital following a regulatory change to the treatment of residential mortgages, which could impact its dividend payouts.

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