ANZ has warned that doubtful business loans will cost $65 million more than expected due to the economic slowdown in Asia.
The bank on Wednesday said it had lifted first quarter cash earnings 3.5 per cent to $1.85 billion, but flagged a credit charge of more than $800 million in its first half results due in May.
Analysts had expected a charge of about $735 million from ANZ, the most Asia-centric of Australia's big four banks.
"The slowdown in the region and increased market volatility are seeing credit conditions become more difficult in the second quarter," chief executive Shayne Elliott said in a statement.
Mr Elliott, the former chief financial officer who replaced Mike Smith in January, said ANZ was taking action to cut costs and "reposition" the business.
The bank said income growth outstripped that of expenses over the three months to December 31, with technology investment and wage inflation largely offset by a 2.5 per cent reduction in staff numbers.
Net interest margin - the profit on loans - contracted two basis points from the second half of FY15 to 2.02 per cent once the impact of the bank's institutional markets business was taken into account.
But the bank said its Australia and New Zealand retail business gained market share in key home lending markets, while small business grew strongly in both countries.
"I think the underlying businesses that we have, as I said, will continue to do well: retail and commercial here, our trade and capital flow intermediation businesses," Mr Elliott said.
"There's undoubtedly going to be some challenges as a result of the slowing global economy and in particular the slowing Asian economy."
Net profit, which includes one-off expenses, was down about three per cent on the prior corresponding period to $1.6 billion.
The bank's shares closed 13 cents, or 0.56 per cent, lower at $23.14.
ANZ'S FIRST QUARTER PERFORMANCE
* Cash earnings up 3.5pct to $1.85bn
* Net profit down 3pct to $1.6bn
* Net interest margin down two basis points to 2.02pct
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