Why is the ANZ share price dropping today?
Shares in the Big Four bank have slipped more than 6% in the last 6 months.
Shares in Australia and New Zealand Banking Group (ASX: ANZ) are among the top trades on the ASX boards on Monday.
ANZ stock dropped as much as 4% to $26.02 in early trading. Its major banking rivals also felt the impact, with Westpac (ASX: WBC), Commonwealth Bank (ASX: CBA) and National Australia Bank (ASX: NAB) all trading 1-2% lower.
What is weighing on the ANZ stock price?
ANZ said in a quarterly update that its net interest margin, a key measure of profitability, compressed 8 basis points from the average of the second half of the 2021 financial year, mainly because of continuing structural headwinds impacting the sector.
It outlined a $140 million hit over the next 2.5 years due to changes to provide retail and commercial customers with simpler and lower fee options. In addition, softer revenue in its markets business in October would also impact first-half results, even though the unit's performance improved in subsequent months.
ANZ managed to slightly increase its home loan book during the December quarter, thanks to "solid progress" in improving systems and processes. But efforts continue to lift response times for more complex home loan applications.
"Given the high levels of refinancing activity in the sector, managing both attrition and margins remain key areas of focus," the lender said in a statement to the ASX.
ANZ's home loans business has been troubled by slow processing times which had resulted in lower volumes during the second half of FY21 in an already competitive mortgage refinancing market. It has steadily lost home loan market share since 2019.
The bank may also not be able to make progress on the cost cutting front. It said costs are likely to remain broadly flat in the first half because it is investing in the business at a faster rate.
ANZ’s quarterly update gives an indication of the pressure on Australian banks, who are facing a squeeze on margins in the face of steep competition in mortgage lending, spurred by record low interest rates through the COVID-19 pandemic.
Rival Westpac last week warned that steep competition in mortgages would further drag margins this year, prompting it to bring forward organisational changes and cut headcount by more than 1,100 over the quarter.
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