The growth of banking sector for any economy is recognized as its lifeblood. If any disruption occurs in the banking sector, this leads to a direct impact on the economy. The current economic downturn due to the spread of COVID-19 pandemic is posing fresh risks for the Australian financial sector. However, the regulatory authorities are working closely to hedge the economic destruction in order to prevent the impairment of households & businesses and support financial market functioning.
Owing to these unprecedented circumstances, the companies have begun to reduce their cost base and strengthen liquidity, in order to find growth in the future and deal with the current financial crisis. To resolve this crisis, many companies listed on the Australian Stock Exchange have taken different steps, which include:
- Withdrawal of Guidance.
- Decision to defer payment of dividend or cancel dividend.
- Reducing Workforce.
Looking at the current scenario, many banks have decided to shelve or cancel the dividend payment. However, there is no legal binding by regulatory authorities like APRA (Australian Prudential Regulatory Authority) to withdraw their dividend during the crisis. Though it has been in discussion with the banks to understand their financial strength. Moreover, the Federal Government of Australia is also not in favor of suspending dividend payments by the Australian banks during the pandemic.
The key concern is the decision of Reserve Bank of New Zealand (RBNZ) for its big four banks, which states to halt dividend payments to their parent banks located in Australia as a measure to shield the New Zealand’s economy from the coronavirus crunch.
In this backdrop, let us now have a look at the performance of a big four bank, Australia and New Zealand Banking Group Limited (ASX: ANZ), that has recently updated the market on its half-year results and dividend payments.
Robust Decline in Profit During 1H FY20
Australia and New Zealand Banking Group Limited (ASX: ANZ) provides banking and financial services to individual and business customers. ANZ has recently updated the market with the operational and financial performance for the first half of the financial Year 2020.
The bank recorded a statutory profit after tax amounting to $1.55 billion, reflecting a decline of 51 per cent as compared to the prior comparable period (pcp). This decline was mainly due to credit impairment charges amounting to $1.674 billion, which included heightened credit reserves worth $1.031 billion for COVID-19 effects.
Due to the impact of COVID-19, the evaluation of investments in Asian associates was undermined by an amount of $815 million. During 1H FY20, the cash profit from continuing operations totaled $1.41 billion, which was 60 per cent down against pcp.
Talking about the divided, due to the economic impact of COVID-19, ANZ has decided to defer its 1H FY20 interim dividend. ANZ took the decision taking into account the high level of uncertainty in the economic outlook, along with the guidance from APRA, stating that all Authorised Deposit-Taking Institutions as well as Insurers should seriously consider their deferring decisions on dividends until the outlook is certain.
Liquidity and Financial Position
During this uncertain period, the bank has entered the crisis in a decent position, with its key ratios being well above regulatory requirements and management targets. The bank has robust CET1 (Common Equity Tier 1) ratio of 10.8 per cent; which is 15.5 per cent on an internationally comparable basis.
The bank notified that the term funding facility of Reserve Bank of Australia would provide access to additional funding of $12 billion in the upcoming three years, which will further give boost to Australian businesses.
The bank believes there are three key factors are influencing its decisions on capital and dividend, which include impacts of COVID-19 on earnings and risk weight migration, use of current capital buffers and responses of ANZ including balance sheet growth, capital allocation and productivity measures.
Let us now have a quick look at the performance of its New Zealand division during the first half of the financial year 2020:
During 1H FY20, ANZ New Zealand recorded a statutory net profit after tax of NZ$789 million, marking a fall of 15 per cent over 1H FY19.
Cash NPAT for the period stood at NZ$677 million, reflecting a decline of 39 per cent. This signifies an uplift in credit provision charges for the period because of changes in the economic environment, in combination with the gains in the pcp from the sales of ANZ New Zealand’s share in Paymark Limited and OnePath Life (NZ) Limited during 1H FY20.
ANZ New Zealand is working strongly with the Government and regulators in order to assist business and retail customers to manage their finances.
Like other New Zealand banks, ANZ Bank NZ Limited would not pay dividends on ordinary shares or redeem non-CET 1 capital instruments until the RBNZ counts a sufficient recovery in NZ economic outlook post COVID-19.
On the outlook front, Australia and New Zealand Banking Group Limited will maintain focus on productivity considering the impact of COVID-19 on its operations. Its long-term strategy is intact, and ANZ is in a strong position to manage the crisis. The bank is committed to its $8 billion cost ambition.
At the close of the trading session on 1st May 2020, the stock of ANZ settled at $15.75 per share, indicating a fall of 6.805 per cent against its previous closing price. The market capitalisation of Australia and New Zealand Banking Group stood at $47.93bn billion as on 1st May 2020. As on the same date, the total outstanding shares stood at 2.84 billion. At the same market price, the Annual dividend yield of the company stood at 9.47 per cent.
The stock of ANZ has provided shareholders with negative returns of 34.57 per cent and 38.86 per cent within a time span of three months and six months, respectively.