How are big 3 banking stocks faring on NZX?

According to reports, in 2021, the banks made a direct contribution of NZ$8.52 billion to the New Zealand economy. They spent NZ$6.12 billion running their businesses in New Zealand. The banking sector contributed to employment generation and employed 27,000 people. The top five banks paid NZ$3.02 billion to over 25,000 employees nationwide.  

During the pandemic, banks reported growth despite the economic slowdown, a trend that continued in FY22. On the loan front, the major hikes in the OCR delivered by the Reserve Bank of New Zealand (RBNZ) are likely to have an impact on mortgage and interest rates, making the lending environment weak.

However, according to the Fitch rating agency, New Zealand’s banks are well positioned for rising interest rates. The report also points out that the big banks will benefit from their large franchise set-ups and simple business models.

In fact, according to the rating agency, the big four banks are expected to expand their net interest margins over the next two years, even though profitability is likely to decline due to the RBNZ’s new capital framework. This new framework is likely to lead to an increase in banks’ risk-weighted assets.

Let’s examine how 3 big banks are faring on the NZX.

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Westpac Banking Corporation (NZX:WBC)

Westpac is an Australian bank with operations in New Zealand. It declared its first-half FY22 in May.

Key points of 1HFY22

• Statutory net profit AU$3,280 million, up 63%
• Cash earnings AU$3,095 million, up 71%
• Cash EPS 85.4 cents, up 73%
• Revenue down 3%
• Declared an interim dividend of 61 cps, which is fully franked

Last month, Westpac completed the sale of its life insurance business to TAL-Dai-ichi Life Australia Pty. The transaction was first announced on 9 August 2021 and took almost one year to complete. WBC expects to report a loss after the sale of approximately AU$1.37 billion. The total sale price of the transaction stands at AU$900 million. The transaction features ongoing payments to Westpac.

Recently, the bank also started a fast approval service for mortgages as it is looking to boost its refinancing sector. This will enable the bank to approve digital mortgage applications in minutes. This is a step towards Westpac’s digital banking in the future.

On 12 September, the share was marginally down 0.13% at NZ$23.920 at the time of writing.

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

ANZ is also amongst the largest banks operating in New Zealand. The Bank reported growth in its first-half performance for the six months to 31 March.  

Key Points of the first-half results

• Jump in cash profit by 1% to NZ$968 million
• Statutory profit up 18% at NZ$1,096 million
• Revenue up 6% reflecting lending growth
• Expenses up 8% due to investments in regulatory-compliance projects

The results reflected a growing housing market despite rising interest rates. Antonia Watson, CEO, ANZ New Zealand, said that the group had successfully grown the home loan market share. She said spring and summer were the busiest periods for the housing market, and while the property values have fallen 4.1% since the November peak, they are still higher than they were at the same time last year.

Due to many factors, ANZ, New Zealand’s home loans increased from 30.38% in September 2021 to 30.66% in March 2022.”

Recently, on 18 July, ANZ announced a deal with Suncorp Group of ANZ. According to the terms, Suncorp would be selling its banking arm to ANZ, at a total transaction cost of AU4.9 billion. The deal is expected to give a boost to ANZ’s retail and commercial businesses. The deal is likely to close by the second half of CY2023.

 On 12 September, the stock was trading up 0.38% at NZ$26.100 at the time of writing.

Heartland Group Holdings Limited (NZX: HGH)

HGH is a financial services company that announced its FY22 results for the full year ended 30 June on 26 August.

Key points

• A net profit after tax (NPAT) of NZ$95.1 million (9.3%) jump
• Gross receivables up 15.3% to NZ$6.2 billion
• Return on equity (ROE) up 21 bps of 12.1%
• Impairment expense decreased to 0.25% in FY2022, down from FY21
• Final dividend of 5.5 cps for FY22, taking the total dividend to 11cps, same as compared to FY21. Payout ratio consistent in last three years.
• Earnings per share (EPS) of 16.1 cps, up 1.2 cps.
• Completed the acquisition of StockCo Australia

On 31 May, HGH completed the acquisition of StockCo Australia for a total consideration of AU$154.4 million. It is funded through an AU$158-million bridge facility provided by a financial institution and AU$300 million through some other sources. Through this acquisition, Heartland will get a foothold in Australia in the livestock financing market.

On 12 September, the stock was trading up 1.09% at NZ$1.850, at the time of writing.

Bottom Line: The big banks of New Zealand are facing the prospects of lower profits in FY23 due to a strict lending environment.