Australia's second-biggest bank by assets is taking steps to regain market share in home loans after admitting it missed the nation's property market boom.
Australia and New Zealand Banking Group Ltd. has hired more staff and allocated greater resources to its home loans business as it prepares for "what we think will continue to be a pretty active market," CEO Shayne Elliott said after the bank reported a 65% year-over-year rise in its cash profit from continuing operations to A$6.20 billion for the fiscal year ended Sept. 30.
"We saw just unbelievable levels of volume across the economy in terms of turnover, people buying and selling houses. Now we didn't prepare well and that's on me. So we struggled a little bit in terms of the volume," Elliott said in comments posted by the bank on its website Oct. 28. After hitting a low in July, the bank has gotten better in terms of its capacity, the CEO said.
ANZ's share in Australia's home loan market slipped to 13.9% as of Aug. 31, 2021, from 14.6% in December 2020, according to the Australian Prudential Regulation Authority. This came as home loans in the country grew 6.2% year on year in August, from a 3.2% rate a year ago, according to Reserve Bank of Australia data. Home buyers have sought to take advantage of record-low mortgage rates, so much so that regulators tightened home loan rules to tamp down on potential housing bubbles.
"ANZ will work on improving its origination processes to boost home loan growth," S&P Global Ratings analysts wrote in an Oct. 28 note. The bank's home lending growth of about 2.5% year-on-year as of Aug. 31 was the lowest of the four major banks and substantially below system. It "contributed to ANZ's loss of market share," Ratings said.
Going digital
The bank is also trying to fix its internal processes and become more digital. Nearly half of its retail sales in Australia, including home loans, were made via digital channels in the recently concluded fiscal year, an increase of 40% over the previous year.
"ANZ has already begun taking some manual steps out of the [loan application] process, which we think other banks have shown is doable without compromising on credit risk," said Nathan Zaia, equity analyst at Morningstar.
CEO Elliott highlighted ANZ's plan to transition to a simpler bank by the end of 2023 to mitigate risks associated with more complicated and "bulky" services. The simplification effort helped drive down the cost of running the bank for the third consecutive year as it aims to shrink its cost base to less than A$8 billion by 2022.
ANZ expects headwinds in the form of competition in the coming year, CFO Farhan Faruqui said on a post-earnings call.
The bank's capital position will likely remain strong and credit losses should ease to pre-COVID-19 levels, according to Ratings.
"We believe that the recovering economy, low unemployment, and improving consumer and business sentiment should help temper the risks to the Australian banking system," Ratings' analysts said.