ANZ reports strong mortgage growth and annual profits of $5.7 billion but warns of “stronger headwinds” in 2013

Big four bank ANZ reported a strong rise in both annual profits and mortgage lending but has warned of a tougher operating environment moving forward with funding costs rising.

The bank reported a 6% rise in annual profits to $5.7 billion with its mortgage book growing by 7% from $170 billion to $182 billion – well above system growth of under 5%.

ANZ also reported a 12 basis point drop in net interest margins over the year to September 30 for its Australian business reflecting “increased funding costs in particular from deposits", as well as asset pricing pressure in its institutional banking division.

ANZ chief executive officer Mike Smith said its Australian retail banking division (which includes mortgage lending) had “performed well across all segments”

“With the global economy softening, it’s clear that the post-GFC lower growth business environment will be with us for the foreseeable future, as will the requirement to operate with higher levels of regulatory capital and higher funding and liquidity costs.

“Although the operating environment in 2013 looks more challenging with stronger headwinds in a number of areas, our unique growth strategy and the momentum we have in adapting to the new environment means we are well placed to deliver value and performance to shareholders in 2013,” he added.

The quality of ANZ’s mortgage book remained strong with mortgage delinquencies continuing to decline across all bands (30, 60 and 90 days in arrears) “however softening economic conditions, particularly in regional Australia, drove increased provision charges”.

The bank grew its deposits base by 12% over the year with customer funding comprises 61% of total funding, with ANZ reducing its reliance on wholesale funding.

“ANZ continues to have the lowest wholesale funding requirement of its domestic peers," said Smith.

Shareholders will receive a total dividend for 2012 of $1.45 per share.