ANZ's mortgage book shrinks, jumps or subsides - take your pick

Trying to establish the state of Australia-based ANZ Bank's position in the New Zealand mortgage market is impossible from the information disclosed in its September quarter general disclosure statement (GDS).

Wednesday, November 25th 2009, 11:31AM

by Jenny Ruth

One set of numbers show the mortgage book has shrunk nearly $0.5 billion in the three months ended September while another set of numbers show it has increased nearly $1 billion. Yet another set of numbers show the mortgage book is down about $77 million for the three months.

The GDS for the New Zealand branch ANZ established in January, which shows the overall position of the bank's New Zealand operations, does show it chalked up a $284 million net loss in the September quarter. That reflects increased charges against profit for bad debts as well as the cost of the ING funds debacle.

The bank made a $157 million net profit in the September quarter last year.

For the year ended September, net profit fell to $194 million from $990 million the previous year.

However, net interest income rose 4.3% to $533 million in the September quarter and was up 13.3% at $2.3 billion for the year.

Other operating income fell to $480 million in the year ended September from $743 million the previous year, partly reflecting a $211 million loss on ING New Zealand Funds. In July, ANZ and ING reached a settlement with about 99% of investors in the ING Diversified Yield and ING Regular Income Funds. The GDS says about 1,300 ANZ customers lodged complaints with the Banking Ombudsman.

Charges against profit for bad loans increased by $351 million in the September quarter, bringing total charges for the year to $883 million, up from $302 million the previous year.

Of the annual total, charges for retail mortgages gone bad were $201 million, other retail exposures accounted for $156 million while $526 million in corporate exposures made up the balance.

The capital adequacy part of ANZ's GDS shows ANZ's on-balance sheet exposures to residential mortgages at September 30 was $53.9 billion. That's $472 million less than the $54.37 billion figure shown in the June quarter GDS.

These figures are the ones GoodReturns has been using for years to assess each bank's position in the mortgage market because they are supposed to be consistent across all the banks, which isn't the case with other sets of figures.

To explain the drop, an ANZ spokeswoman says these figures include "the fair value hedge adjustment, accrued interest and other items required under the capital adequacy rules."

However, the bank's loan-to-valuation table (LVR), also in the capital adequacy not, shows retail mortgages totalled $54.32 billion at September 30, a $953 million increase from the $53.37 billion figure shown in the June quarter GDS.

The LVR table shows 10.9% of total retail mortgages had LVRs above 90% at September 30, down from 11.2% at June 30.

However, another note, net loans and advances, shows the mortgage book fell by $77 million to $53.54 billion.

The ANZ branch, which was created to get around Australian prudential rules preventing an Australian bank from lending more than 50% of its equity to a subsidiary, bought a further $4.99 billion in mortgages from ANZ's New Zealand subsidiary, ANZ National Bank, on July 28.

That meant ANZ National's mortgage book shrank $3.53 billion from $45.44 billion at June 30 to $41.9 billion at September 30. (That's according to the capital adequacy note - to further complicate matters, ANZ National reports under the Basel ll rules while the ANZ branch reports under the Basel 1 rules which tend to overstate banks' mortgage books since they include business loans secured with residential mortgages).

The branch's mortgage book alone grew from $4.52 billion at June 30 to $8.75 billion at September 30.

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