Antonia Watson: ANZ Chief Executive on the bank's annual profit going up by 21 percent

A $2.5 billion dollar boost for our largest bank.

ANZ New Zealand's announced a 21 percent increase in its annual profit.

It's largely down to a good year for the bank's hedging - investments designed to offset financial risks.

Chief Executive Antonia Watson says the bank also grew its balance sheet, and adjusted funds set aside for covering unpaid loans. 

"In a sign of green shoots, we've actually released some of the credit provisions that we took in previous years."

Westpac has had a 13 percent profit increase - and BNZ's had no change.

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Episode Transcript

Speaker 1 (00:09):
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Speaker 2 (00:16):
Nine two nine two texts. That's the text number, standard
text fee supplied Barry Soop will have more to say
than to er off level after five o'clock. Now, let's
talk about banks, because yet another bank has posted an
increased profit. A and Z New Zealand has reported an
after tax profit of two point five billion dollars for
the year to September, which is up more than twenty percent.
Antonio Watson is the chief executive and is with us. Now,

(00:38):
Hi Antonio, Hi, Heather, Now, how are you guys doing
so well when the economy has been such a turd?

Speaker 3 (00:44):
Really well? I have to first story your attention to
these strange things called economic hedges, which are a fluctuating
big number due to accounting treatment. And if you look
through that, it's based on it's basically us valuing our
derivatives boring. If you look through that and you look
at our actual underlying customer business, our profit is up
four percent, which is about the same amount that our

(01:05):
lending was up and our deposits were up, so growing,
our profits growing in line with the growth of our
balance sheet.

Speaker 2 (01:10):
Okay, so up four percent but still Antonia. Up four
percent at a time when the economy is going backwards
by you know, one percent in a quarter. How did
you manage to do that?

Speaker 3 (01:22):
So a couple of things. One is that we grew
our balance sheet and the other one is the other
main one is that, you know, in a sign of
green shoots, as we said in our media release, we've
actually released some of the credit provisions that we took
in previous years. So last year we had a charge
and this year we've had a release.

Speaker 2 (01:39):
How much of you growing balance sheet by just out
of interest?

Speaker 3 (01:42):
Over two hundred billion dollars. It's the size of our
assets and our balance sheet. So ok, while I understand
that people really think it's a big I mean two
point five were underlying two point three is a big number.
But we're a really really big company.

Speaker 2 (01:57):
Yeah. Are we paying more in interest margins in New
Zealand than the Aussies are.

Speaker 3 (02:03):
A little bit more so when we do a direct
light for light comparison with Ourustralian business, we pay New
Zealanders pay about twenty one basis points more. That is
more than accounted for by the additional capital that we
need to hold in New Zealand.

Speaker 2 (02:18):
So when the reform Coalition, the Banking Reform Coalition said,
if the margins were the same as A and Z
Australia's margins, our mortgages would be one hundred basis points lower.
Are they wrong?

Speaker 3 (02:28):
They are comparing apples and oranges. They're comparing then the
margins in New Zealand to the margins of our entire
A and Z group in every country including New Zealand,
and importantly includes our institutional business, which has a big
markets business that doesn't focus on margins. It focuses on
returns and it has a big The rest of the
institutional business focuses a lot on other operating income, not

(02:49):
just margin because they get fees for transaction band.

Speaker 2 (02:52):
So in New Zealand and bas really our net interest
margin is two point six percent. Yeah, in New z
And what's the Australia for?

Speaker 3 (03:01):
And if you could so if you add together, if
you add together the same equivalent businesses, which is our
retail business and our business and private being business, there's
is two point three nine percent, So twenty one basis
points flower.

Speaker 2 (03:14):
Okay, why do we pay more.

Speaker 3 (03:17):
As I said, we have we're required to hold more
capital in New Zealand. And when you think about our capital,
our shareholders invest nearly twenty billion dollars in our business
and we have to provide them a return on that.
They've had to invest another one point two billion this
year alone just because of the increased capital requirements from
the rbn Z. That would translate into a ten basis

(03:37):
point increase in capital if we were to hold returns flat.
So the fact that we've increased our NIM by three
basis point nine ten just shows that the shareholders are
wearing some of the increase in capital, not just the customers.

Speaker 2 (03:50):
Okay, when so Nikola will lison them are obviously attending
to this. At the moment, when it's all sorted, will
we be paying the same in the interest margin as
the Australians.

Speaker 3 (03:59):
Well, it depends on what is sorted, because at the
moment the proposals from the Reserve Bank, one of them
makes us hold more CET one capital, which is the
most expensive form of capture.

Speaker 2 (04:09):
It's not going to happen though, you know that.

Speaker 3 (04:11):
Well we'd like to hope not. But the other one
requires us to hold more in sort of capital like
instruments all together. So at the moment the proposals don't
really change the dial match neither, and of course don't
know and don't forget hither. Also that we're talking about
stopping increases going forward, we're not going back in time,
so we're not going to really expect significant reductions and interest.

(04:34):
We're just going to expect less pressure on mats going up.

Speaker 2 (04:38):
Okay, So Antonia, if we took away, if we took
that away all together, we flattened it out to the
same place in terms of capital requirements as the Australians
would be paying the same.

Speaker 3 (04:47):
We'd be well, if we allowed for the amount of
capital they hold and did nothing else, we'd actually be
paying a little bit less here.

Speaker 2 (04:54):
Well, that sounds awesome. I like that. I've got to
ask this question. You're going to hate it. Are you
getting a bonus?

Speaker 3 (05:00):
Yes? I am. You'll be able to see that in
the room report on prubished today. It's very complicated, but
overall this year I'll be paid just under two point
eight million dollars.

Speaker 2 (05:11):
Nice, you got any plans with it?

Speaker 3 (05:15):
Invested wisely?

Speaker 2 (05:16):
And you do not have to answer Tony you're so game,
you don't have to answer that question.

Speaker 3 (05:22):
Mate.

Speaker 2 (05:22):
What you say is buger off here than none of
your business. Listen, thanks, thanks very much. I really appreciate
your time. That Antonia Watson A and Z in New
Zealand's Chief executive.

Speaker 1 (05:31):
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