Australia's ANZ builds mortgage book as bad debts drop

By Paulina Duran

SYDNEY (Reuters) - Australia and New Zealand Banking Group Ltd (ANZ) has overcome a regulatory handbrake on residential lending by bolstering its mortgage book by A$2.6 billion ($2.06 billion) in the December quarter while also cutting impaired assets.

The country's third-largest bank by market capitalisation said residential mortgages grew by an annualised 10 percent to A$98 billion, largely driven by owner-occupied mortgage lending.

Riskier investor loans, which are being closely watched by Australia's prudential regulator, were only about half a percent higher over the period, the bank said.

"They are all switching away from investors and interest-only lending to owner-occupied loans," said Bell Potter banking analyst TS Lim, adding the bank was using its strong capital position to write more loans.

ANZ's common equity tier 1 ratio stood at a high 10.82 percent as at Dec. 31, after booking proceeds from the sale of several regional businesses, putting the bank in a strong position to hand cash back to shareholders.

The Sydney-based bank is ahead of its three large Australian peers in building up capital coffers after the financial regulator last year asked them to raise their tier 1 capital ratios to 10.5 percent by 2020 to protect against financial shocks.

ANZ began buying back up to A$1.5 billion in shares on-market last month, with analysts expecting the bank to increase that in coming months.

The Australian Prudential Regulation Authority also asked banks to limit new interest-only lending to 30 percent of total new residential mortgage lending and limit investor credit to well bellow a 10 percent annual growth cap, to prevent a property bubble.

The bank did not report group profits in its limited quarterly update after it decided to stop reporting quarterly earnings figures last month.

BAD LOANS FALL IN NEW ZEALAND

Group impaired assets fell 9.3 percent to A$2.16 billion ($1.71 billion), helped by a reduction in bad loans in its New Zealand division.

In a separate statement to the exchange, ANZ said profits at its New Zealand unit for the quarter were 30 percent higher than the previous year to NZ$501 million ($369.24 million).

Higher revenues from business loans to the agricultural and dairy sectors as well as the lower provisions underpinned the result.

ANZ classifies loans that may not be repaid in full by the due date, or where concessions have been provided because of financial difficulties, as impaired assets.

ANZ shares were largely unchanged in early trading on Tuesday, in line with the broader market.

($1 = 1.2645 Australian dollars)

($1 = 1.3569 New Zealand dollars)

(Reporting by Paulina Duran in SYDNEY; Additional reporting by Susan Mathew in Bengaluru; Editing by Jonathan Barrett and Stephen Coates)