ANZ has disappointed the market with a $3.4 billion first-half profit but chief executive Shayne Elliott says the bank is now prepared for a sustained period of low credit growth.
Shares in ANZ slipped as much as three per cent on Tuesday after it reported flat revenue and a lower net interest margin from a six-month period in which it bolstered its balance sheet, cut expenses and improved credit quality.
Mr Elliott said the conservative approach left the bank well-placed for headwinds set to result from further regulatory intervention in the home loan market.
The Australian Prudential Regulation Authority has already limited higher-risk interest-only loans to 30 per cent of new residential lending and, with household debt still rising because of sluggish wage growth, Mr Elliott said more intervention is on its way.
"I think it's clear the regulator will continue to act until growth slows," Mr Elliott said.
"We're a little bit smaller and we may be able to grow in that environment, but there is going to be a slowdown."
Mr Elliott said he expected ANZ to finesse its mortgage pricing to more accurately reflect risk, perhaps by taking into account loan-to-valuation ratios.
"We might for example price differently for people with a 20 per cent deposit versus those with 30 or 40," Mr Elliott said.
"That is something that is a very realistic possibility."
ANZ, whose full-year results will show the impact of recent rate hikes on interest-only and investor loans, is comfortably under APRA's 10 per cent annual limit on investor lending growth.
"We've set our bank up for a scenario that says both (credit and wages) are going to be a little bit lower for longer - easily a couple of years - and if we get positively surprised we can respond then, but it's hard to imagine how that could come about," Mr Elliott said.
Mr Elliott said growth for ANZ would come from its focus on digitisation and meeting customers' needs through innovation.
He said ANZ's status as the only big four bank to offer Apple Pay had attracted new customers, many of whom had then taken up other products.
Cash profit for the six months to March 31 was 23 per cent higher than the writedown-heavy $2.8 billion a year earlier, but it missed the $3.5 billion to $3.8 billion predicted by analysts.
Net interest margin fell from 2.07 per cent - and 2.06 per cent in the preceding half - to 2.00 per cent, reflecting stiff competition for deposits and loans, increased funding costs, and the impact of the Reserve Bank's August cash rate cut.
ANZ shares fell three per cent in early trade on Tuesday and at 1530 AEST were 81 cents, or 2.5 per cent, lower at $32.14.
Return on equity rose for the first time since 2010 - to 11.8 per cent from 9.7 per cent a year earlier - while ANZ's common equity tier one capital ratio rose to 10.1 per cent.
"Strength at the expense of earnings power," UBS banking analyst Jon Mott said.
ANZ HY RESULTS
* Cash profit up 23pct to $3.411b
* Net profit up 6pct to $2.911b
* Revenue flat at $10.303b
* Interim dividend unchanged at 80 cents, fully franked
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