A look at NZX-listed banking stocks

Highlights

• The Reserve Bank of New Zealand held its last monetary policy meeting in November
• It raised the official cash rate (OCR) by 75 bps
• This has taken the total interest rate to 4.25%

The Reserve Bank of New Zealand (RBNZ) in its latest monetary policy review (23 November 2022) delivered an OCR of 75 basis points to 4.25%. This is the sharpest rise ever since the Reserve Bank started raising interest rates last year to curb inflation.

In a statement issued after the OCR announcement, the RBNZ said that most central banks had continued to raise interest rates and pointed towards more interest rate hikes in the near future.  

Further, it pointed out that inflation in NZ in the September quarter was significantly higher than expected. It also said that price pressures were more broad-based and likely to be sustained for some time.

This move by the Central Bank influenced the cost of borrowing in New Zealand and would cost the commercial banks more to borrow, and the cost is expected to be passed on to consumers.

In this context, it would be relevant to mention that the biggest banks in NZ raised their home loan and other interest rates following the OCR hike by the Reserve Bank in November.

On 30 November, Westpac announced that it would increase its home loans by 50 bps. It also announced an increase in home loan interest rates last month.

Against this backdrop, let’s look at the four banking stocks on the NZX.

Westpac Banking Corporation (NZX: WBC)

Westpac is a bank with headquarters in Sydney, Australia. As per the company profile given on its website, it provides a range of financial services in the New Zealand and Australian markets. The services provided by Westpac include consumer, business, and institutional banking with wealth management services. 

In FY22, Westpac New Zealand made an annual profit of NZ$1.05 billion after tax. In its full-year result announced on 7 November 2022, the bank reflected an increase of 12% in net profit over the previous year. As per the company announcement, net operating income rose 10% to NZ$2.70 billion, while expenses rose 2% to NZ$1.158 billion.

Westpac NZ’s chief executive, Catherine McGrath, said that the sale of the life insurance business added NZ$126 million to the bank’s financial results.

As per a company report, in FY22 starting 1 August 2022, the bank also completed the sale of its life insurance business to TAL Dai-ichi Life Australia Pty. As per reports, the transaction took almost one year to complete after it was first announced on 9 August 2021.

As per CEO McGrath, Westpac had taken the initiative of extending support to customers experiencing big mortgage rate increases. Also, the bank has increased its branch hours and opened a new contact centre at the regional level to help customers who need special care.

Peter King, the group CEO, spelt out the group’s strategic priorities before the group as it entered FY2023 by saying the bank seeks to improve customer services in Australia and New Zealand. And hope to focus on performance by simplifying its processes. He said despite the economic uncertainties, the group was in a good position as it moves into CY23. 

On 30 December, the stock was trading up 1.71 at NZ$24 at the time of writing.

Australia and New Zealand Banking Group Limited (NZX:ANZ, ASX:ANZ)

ANZ is also one of the largest banks operating in New Zealand. Its headquarters are in Melbourne, Australia, and the bank operates in 32 locations, as per the company website. It is Australia’s second-largest bank by assets and its fourth-largest bank by market capitalisation. It has more than 8.5 million retail and commercial clients.

It declared its full-year results for FY22 on 27 October 2022, in which it reported a 16% jump in its statutory profit after tax to AU$ 7,119 million.  

Key highlights of FY22

• Partnership with Worldline, which will provide online payment technology.
• ANZ is in the process of acquiring Suncorp Bank, subject to regulatory approvals. Once acquired, it is likely to provide a platform for growth, particularly in the Queensland area.
• The acquisition is expected to be partially funded by AU$ 3.5 billion in equity capital raising.
• The deal is likely to close in the second half of CY23.

CEO of ANZ, Shayne Elliott,  said that all divisions had performed well in FY22 and that the bank could restore momentum in the home loan segment in the Australian market. In New Zealand also, it maintained a lead in the key segments.

For FY23, the bank stated that it was a period of uncertainty globally with central banks trying to control inflation. The Russia-Ukraine war also continues to have an impact on the global economy. However, since the balance sheet of average Australians and New Zealanders was sound but the cost of living was rising, it could be a testing period, the bank said in its outlook for the upcoming year.

On 30 December 2022, the stock was trading flat at NZ$25.150, at the close of the trading session.

Heartland Group Holdings Limited (NZX: HGH)

Heartland is an NZ-based financial services group listed on the NZX. In its FY22 results declared on 29 September, the group reported a net profit after tax of NZ$95.1 million.

On 13 October 2022, Heartland Group said that it expects the net profit after tax (NPT) for the FY23 ending 30 June 2023 to be within the guidance range of NZ$109 million to 114 million, excluding any impact of fair value changes on equity investments held.

On 23 August 2022, Heartland announced an equity raise of NZ$200 million. The equity raise comprised NZ$130 million of fully underwritten placement and a no-underwritten share purchase plan for shareholders in NZ and Australia.

On 30 December 2022, the stock was trading down 0.55% at NZ$1.800 at the close of the session.