ANZ warns interest rates on all its loans will jump if the federal government calls for banks to hold more core capital as a buffer against a financial crisis.
As he unveiled a record $7.1 billion annual cash profit, chief executive Mike Smith said customers would be the ones to bear the brunt of potential recommendations from the financial system inquiry.
The inquiry, chaired by former CBA boss David Murray, will hand over a report to Treasurer Joe Hockey in November, and may call for banks to hold more “Tier 1” capital.
That refers to a bank’s core capital, its equity, as opposed to Tier 2 capital which is made up of complicated debt structures and financial reserves.
Mr Smith said lifting ANZ’s Tier 1 capital buffer from one per cent to two per cent would add 50 basis points to interest rates on all of it loans.
Asked by reporters if there were other ways for the bank to meet the cost of lifting capital buffers, Mr Smith replied: “Well, who else picks it up, investors?
“These are the issues that need to be raised, rather than glibly saying that this is the solution to all the problems.
“Frankly, I haven’t yet seen the problem identified.”
ANZ currently has the capacity to absorb $56 billion in losses before requiring a government bail out, Mr Smith said.
“To look at safety of a bank, you don’t just look at core Tier 1, you look at how a bank can absorb any potential problem,” he said.
ANZ’s financial results showed it increased its Tier 1 capital ratio in the year to September, while the quality of its loans also continued to improve, pleasing analysts.
The company’s shares closed up 24.0 cents at $33.50.
ANZ’s profit growth was driven by improved contributions from all of its divisions, including its expanding international business, which now equates for 24 per cent of all revenue.
Mr Smith said the bank also performed well in Australia, with loans growing seven per cent and deposits five per cent.
“ANZ is well placed to perform in a low growth domestic environment while of course Asia continues to grow strongly and gives us an optionality that other banks don’t have,” he said.
“While challenging, I think this environment will really play to ANZ’s strengths.”
He also dismissed concerns of rising risk in the mortgage market, which has been raised by the Reserve Bank amid a growing proportion of loans being granted to investors.
“The housing market is in a pretty good shape, I don’t think there’s too much froth at the moment,” Mr Smith said.
Lending standards remain conservative and default rates are “tiny”, he said, a similar sentiment expressed on Thursday by NAB chief executive Andrew Thorburn.
ANZ POSTS ANOTHER RECORD PROFIT
* Full year cash profit of $7.12bn, up 10pct from $6.49bn in 2013/14
* Net profit of $7.27bn, up 15pct from $6.31bn
* Operating income of $20.1bn, up eight pct from $18.5bn
* Final dividend of 95 cents a share, up from 91 cents