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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 3 May 2017

WA home loan portfolio deteriorating

Cash profit misses

ANZ reported an interim cash profit of $3.4 billion for the half, an improvement of 23 per cent - the prior year result having been hit by write-downs - but missing market expectations of a $3.5 billion result. 

The group's net interest margin was only impacted to a very small extent by funding costs, but did decline nevertheless.

ANZ announced rate hikes on investor and owner-occupier loans last week, with steep increases of up to 40bps on interest-only products (but some cuts being applied to principal and interest mortgages).

Over the next year we can expect to see lenders forcing borrowers away from interest-only loans as I looked at in more detail here.

This isn't the place for a detailed review of the ANZ interim financials, but below I'll take a quick look at the home loan portfolio. 

Delinquencies rise in WA

ANZ's 90+ day home loan delinquencies have been relatively contained to date in the Australia division, though they have tracking at somewhat higher levels than seen in recent years. 

Source: ASX

A closer look at the portfolio performance for the Australia division reveals the concerning rate of deterioration in home loans that are 90 days past due in Western Australia.

Since 2013 home loans that are 90 days past due in the state have risen sharply from as close to zero as you will see across a loan book towards 1.4 per cent of home loans. 

Source: ASX

Queensland has typically had a higher rate of delinquency than elsewhere since severe flooding in the state in 2010-11. 

Now more than half a decade on the flood-related delinquencies have mostly either been impaired or resolved, but loans that are 90 days past due remain higher than elsewhere in Australia due to the very poor economic conditions in many parts of regional Queensland.

Vacancy rates are also elevated in Perth and many parts of regional Western Australia and Queensland, a knock-on impact from the end of the resources construction boom.

The ANZ share price took a knock from yesterday's results, dropping by 2.12 per cent by the close to $32.25. 

Genworth Mortgage Insurance (ASX: GMA) dropped 4.19 per cent to $3.20 yesterday, having been down by 7 per cent in early trade.