ANZ chief executive’s dire warning for Australian home borrowers

ANZ chief executive Shayne Elliott has warned that the bank expects more borrowers will struggle to repay their mortgages and find themselves in financial stress.

The Reserve Bank’s rate hikes in 2022 and 2023 have escalated borrowing costs at the most aggressive pace in a generation.

Mr Elliott said he expected things to get worse even though mortgage debt levels were still low.

“We expect the number of people under stress to increase,” he said on Tuesday as he presented ANZ’s half-year results.

“Those interest rates will – continue to – hurt.

“So you would expect the slowdown to continue and, as we will see, more customers to become stressed.”

ANZ’s share price fell 1.29 percent to $28.40 in the first 45 minutes of trading on the Australian Securities Exchange, with cash gains disappointing investors.

Mr Elliott also blamed the June 2022 expiry of the former coalition government’s low- and middle-income tax offset – which gave up to $1,500 in aid to 10 million workers earning up to $126,000 – for exacerbating the cost of living for borrowers.

“So there are clearly very real tensions in the economy,” he said.

‘I mean that interest rates have risen a lot relatively quickly.

“People are paying more taxes because of wage growth, and of course things like rent, food and groceries have been increasing at a pretty rapid pace.”

But Elliott said most borrowers were staying afloat despite interest rates rising at their most aggressive pace since the late 1980s.

“Despite the stress, there is still resilience and people are being very careful with their money,” he said.

‘To give you a figure – and I think this is quite a surprising and not intuitive figure – 79 per cent of ANZ home loan customers are ahead of their repayments, paying more than they need to.

“The reality is that banks are in a very strong position to help customers who are in a difficult position.”

Mr Elliott said mortgage defaults are being kept to a minimum simply because the banking regulator requires banks to assess a borrower’s ability to cope with a three percentage point increase in variable interest rates.

Since May 2022, variable mortgage rates have risen by 4.25 percentage points – a level well above the Australian Prudential Regulation Authority’s stress test.

“One of the reasons is that it has actually been very difficult for many customers to even get a home loan, or get a credit card, or run their business,” Mr Elliott said.

The credit quality of the banks was really very strong. And that means that the people who do have a mortgage or run a business are actually quite resilient.’

The Reserve Bank is widely expected to leave rates unchanged on Tuesday, with the futures market seeing a rise as an eight percent chance.

Cash rates are already at a 12-year high of 4.35 percent, but underlying inflation measures that rule out volatile price movements are above 4 percent – ​​levels well above the RBA’s target of 2 to 3 percent.

As a result, the 30-day interbank futures market has ruled out any rate cut in 2024 and is instead expected to delay relief until August 2025.

ANZ expects a rate cut in November, along with the Commonwealth Bank, Westpac and NAB, but predicts only two rate cuts in 2025 – unlike its peers who predict four rate cuts.

Borrowers have already endured the most aggressive pace of monetary policy tightening since 1989, pushing up variable mortgage rates by 68 percent for homeowners with a 20 percent down payment.

Variable rates now start with a ‘six’ instead of a ‘two’.

ANZ’s half-year 2023-2024 net cash profit of $3.552 billion was 7 percent weaker than the first half of 2022-23 – including continuing operations from October to March and excluding acquisitions such as the takeover of Suncorp’s banking division.

Saxo Asia Pacific senior sales trader Junvum Kim said the result disappointed investors.

“Cash earnings performance for ANZ is lagging expectations amid continued compression in net interest margins,” he said.

The bank’s fiscal year runs from October 1 to September 30, instead of the traditional period of July 1 to June 30.

Shareholders will receive an interim dividend of 83 cents per share, fully franked because ANZ has already paid corporate tax.

In February, the Australian Competition Tribunal cleared ANZ to acquire Brisbane-based Suncorp bank for $4.9 billion, overcoming the Australian Competition and Consumer Commission’s previous objection in August 2023.

“We’re making progress,” Elliott said.

“I mean, these things take time. We are very pleased to have received the Tribunal’s approval.

‘There are still a few steps to go through. We need the Queensland Government to pass some legislation, and they are on track to do this transaction. They have been nothing but supportive of this transaction and we thank them for that.”