Australia and New Zealand Banking Group Ltd (ASX: ANZ) has reported its FY20 result showing a 41% plunge of cash profit.
ANZ’s FY20 result
This morning ANZ has reported that its cash profit fell 41% to $3.66 billion. Cash profit from continuing operations fell slightly more, down 42% to $3.76 billion.
In terms of the statutory result, net profit fell by 40% to $3.58 billion.
ANZ explained that the profit decrease was primarily driven by full year credit impairment charges of $2.74 billion. This was up from $795 million last year because of the impact of COVID-19 and a first half impairment of Asian associates of $815 million, also related to the pandemic.
The major bank tried to point to solid underlying performance by revealing that profit before credit impairments, tax and notable items only fell by 1% to $10.1 billion. But COVID-19 impacts and the Royal Commission expenses can’t be ignored – they are reducing profit.
ANZ said that its gross loans and advances increased by 1% to $622.1 million whilst customer deposits went up 8% to $552.4 million.
Its balance sheet remains in a strong position with the CET1 ratio finishing the financial year at 11.3%. That’s comfortably above APRA’s ‘unquestionably strong’ benchmark.
ANZ’s net interest margin (NIM) continues to deteriorate. It reported that its continuing operations saw the NIM decline from 1.69% at the end of the first half of FY20 to 1.57% at the end of the second half. The NIM is a key measure of profitability – it tells investors how much money a bank is making from the money it’s lending out, compared to the funding cost (to the bank) of that money. Lower official interest rates cause the NIM to fall.
Yes, ANZ is paying a dividend.
It’s going to pay a final dividend of $0.35 per share. When added to the (delayed) interim dividend of $0.25 per share, that brings the total dividend for FY20 to $0.60 per share. That represents a cut of 62.5% from FY19.
ANZ CEO Shayne Elliott said: “While our immediate focus has been on assisting customers, we have also taken steps to protect the interests of our shareholders by maintaining our strong capital position, tightly managing costs and bolstering credit reserves, while still managing to pay a prudent dividend without diluting their holdings.”
Is it worth buying ANZ shares?
The big four ASX bank is looking better than it did five or six months ago. It seems the property markets of most states and territories, perhaps every one, is going better than expected. This should help limit ANZ’s credit loss exposure.
But I’m not convinced that ANZ is a great buy today. The low interest rate world looks like it’s here to stay. Bad debts could still rise. I think I’d rather buy other ASX dividend shares like Brickworks Limited (ASX: BKW) or Washington H. Soul Pattinson and Co. Ltd (ASX: SOL).