!["We are running the business cautiously and with a conservative risk appetite," ANZ CEO Shayne Elliott said.](/content/dam/images/g/s/h/e/i/o/image.related.afrArticleLead.620x350.gsh6wv.png/1478178580215.jpg)
![](/web/20161106185135im_/http://www.afr.com/content/dam/images/1/4/4/6/w/8/image.imgtype.afrAuthorAvatar.120x120.png/1435477793721.png)
ANZ Banking Group has shed 3600 jobs and chief executive Shayne Elliott is more cautious on mortgage lending fearing any fall in house prices could see lenders "end up underwater".
Unveiling a full-year cash profit of $5.9 billion, down 18 per cent, Mr Elliott said economic headwinds, more demanding community expectations on banks and the tougher regulatory environment, including the prospect of higher levels of capital, would force ANZ to continue to reduce costs.
"We are running the business cautiously and with a conservative risk appetite," he said on Thursday.
ANZ aggressively reduced headcount over the year to September 30, with 7 per cent of the workforce departing, while institutional lending was cut by $21 billion as the bank dumped corporate customers who don't generate enough profit.
Mr Ellliott's plan, which will also see ANZ explore asset sales and deploy capital more selectively to help protect the bank from a volatile economy, has won the support of analysts and investors, who believe ANZ's shift from a large, complex financial conglomerate to a more focused and selective lender will protect returns.
"Corporate lending is traditionally a low-returning and capital-heavy business so being more cautious in that area is the right thing to do," said Paul Taylor, the head of Australian equities at Fidelity Investments.
After announcing this week it would sell its its retail and wealth operations in five Asian countries, ANZ said on Thursday it would consider selling its Australian wealth business. Macquarie estimates this could deliver between $3 billion and $5 billion and release up to 1 percentage points of additional capital. ANZ will continue to distribute wealth products to customers, but does not believe it has a competitive advantage manufacturing them.
"Fundamentally banks are good distributors, they don't need to own wealth management or life insurers, they are better off distributing the best products under an open architecture," Mr Taylor said.
Lenders at risk
After the Reserve Bank of Australia said this week some property markets are rising "briskly" and ratings agency Standard & Poor's warned economic risks facing banks are rising due to the growth in private-sector debt and rising residential property prices, Mr Elliott said: "With strong house price growth, there is always a risk that could reverse."
While ANZ is not forecasting house prices to fall, "it doesn't take a lot to construct a scenario where they go down at double digits" and if this were to occur, banks that have lent large proportions of a purchase price could "end up underwater", Mr Elliott said. As a result, "we are a bit more cautious", even if this resulted in ANZ giving up some market share to more aggressive competitors.
ANZ is also alert to rising underemployment, which is at its highest level in a decade and refers to employees not being able to work as many hours as they would like. "We are saying in that environment, we should just be really cautious about who we are lending to and we don't think it is the right time to be out on the front foot too aggressively," he said.
However, after adding 250 new front-line bankers in NSW, ANZ said it will continue to target above-average growth in that state as it is more comfortable with the NSW economy compared to other parts of the country.
With the cost to income ratio for the year falling to 44.8 per cent, Mr Elliott said more of the bank's annual $1 billion in IT spending would be deployed to streamlining internal processes to continue to drive costs down.
"ANZ is more progressed on costs than peers," said Watermark Funds Management investment analyst Omkar Joshi. "ANZ has exhibited good momentum in turning around the business."
Mr Elliott said return on equity of 12.2 per cent, down from 13.8 per cent a year ago, was disappointing. "It is still low, it is not good enough, we want it to be higher."
The bank plans to grow its small business lending, including banking more start-ups, and is seeking to attract more high income customers to its deposit and credit card after breaking ranks from the other banks to cut a deal with Apple that allow its customers to use the Apple Pay digital wallet.
ANZ stock outperforms
ANZ will pay a final dividend of 80 cents per share, bringing the total dividend for FY16 to $1.60 per share.
ANZ shares finished the day up 0.6 per cent at $27.35, the strongest performance among the major banks.
Credit Suisse analyst Jarrod Martin said ANZ had highlighted resilient net interest margins, good cost management and stronger than expected capital. But the negatives included soft revenue and rising impaired assets and Mr Martin said the profit numbers may not be strong enough to see the stock continue to outperform.
Macquarie analyst Victor German agreed, pointing to the "limited scope for ongoing outperformance on the back of this result, unless management is able to provide further clarity on balance sheet optimisation and cost-out opportunities, which we continue to see as realistic in the medium term."
Mr Elliott also provided an update on commitments he gave to the parliamentary inquiry that quizzed the big four bank CEOs in October.
He will meet colleagues early next week to discuss whether ANZ should issue a new mortgage product that tracks the cash rate and a decision may be made by end of the year. "The early indications are we could offer a [tracker] product at probably not an unreasonable premium to the standard variable rate," he said.
ANZ is also reviewing the interest rate charged on credit card cash advances, after that came under pressure in the hearings from Labor MPs, and expects to announce some changes on credit card towards the end of the year.
Mr Elliott urged investors to remain patient with ANZ's turnaround, noting it could be another year before the results of the restructuring come through.
Disposing non-core assets, cutting less-profitable customers and reducing risk weighted assets would continue to the end of calendar 2017, he said, while changing the operating model to embed capital efficiency into the bank's culture and building out the digital banking strategy would be in focus until calendar 2018.
By the end of calender 2017, he said investors should expect ANZ to be making competitive gains as it enters a "positive cycle of cleaner, leaner [and] sustainable growth".