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HY22 result: ANZ (ASX:ANZ) share price on watch after profit drop

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is under focus after the release of its FY22 half-year result.

This is for the first six months to 31 March 2022.

ANZ HY22 result

There are a number of different profitability metrics that the bank reported to show the various levels of the bank’s underlying profit compared to the second half of FY21. Profitability is an important driver for the ANZ share price:

  • Statutory profit after tax rose 10% to $3.53 billion
  • Continuing operations (CO) cash profit fell 3% to $3.11 billion
  • CO cash profit before credit impairments and tax dropped 7% to $4.16 billion
  • CO cash profit before credit impairments, tax and large or notable items fell 10% to $4.14 billion
  • Total credit provision release of $284 million
  • Flat dividend of 72 cents per share
  • Common equity tier 1 (CET1) ratio “strong” at 11.5%

Loan book performance

ANZ said that its gross loans and advances increased by 3% to $655 billion, while customer deposits increased 3% to $611.1 billion.

The bank’s total provision charge was a release of $284 million. This means that ANZ has reduced how much it has provisioned for loans going bad.

ANZ said that customers are generally emerging from the pandemic in a position of strength, with healthy balance sheets and low levels of arrears across key segments, leading to a low impairment charge for the half.

However, there are risks and uncertainties with the Russian invasion, rising inflation and interest rates, as well as Australian floods.

Dividend

ANZ thought an interim dividend of $0.72 was appropriate and consistent with its targeted dividend payout ratio of between 60% to 65%. However, a good dividend is supportive for the ASX dividend share.

The big four ASX bank is considering what to do with its excess capital – invest for growth or return excess capital to shareholders?

New structure

It’s going to lodge a formal application with APRA, the federal Treasurer and other required regulators to establish a non-operating holding company and create distinct banking and non-banking groups within the organisation. This is how many financial institutions are structured.

ANZ said it will provide greater flexibility and potential to create value for shareholders by having a non-banking segment that would allow banking-adjacent businesses to be developed or acquired to help bring the best new technology and non-bank services to customers.

Thoughts on the ANZ share price and profit outlook

While the underlying net interest margin (NIM) dropped 6 basis points to 1.59% over the half, the bank pointed to some positives for the NIM. The NIM is a key profit metric, showing how much profit a bank is making on its lending compared to the cost of that funding (eg savings accounts).

ANZ said that some positives for the NIM is that there will be higher earnings on capital and the ‘replicated deposit portfolio’ from rising interest rates. It gives ANZ flexibility in a rising rate environment, with an increasing mix of variable home loan flows.

However, competitive pressures remain.

On balance, ANZ sees the FY22 second half margins as being “slightly positive.”

With underlying profit down, it’s not surprising the ANZ share price is actually down 5% over the last six months. ANZ shares haven’t done much over the past year or even the last five years. ANZ would not be the ASX blue chip share or one of the interest-sensitive ASX dividend shares that I’d want to buy.

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