ANZ Banking Group Ltd says it expects provisions for doubtful debts to fall in fiscal 2010, with more significant falls the year after.

ANZ’s retiring chairman, Charles Goode, told the bank’s annual general meeting on Friday that net profits “should be higher” in the coming year.

“There is good evidence that the Australian and New Zealand economies are recovering well and the Asian economies are showing strong growth,” Mr Goode told the meeting in Melbourne.

“The financial markets are also recovering and the volume of lending should pick up,” he said.

“Increased competition is, however, likely to restrain the further recovery in interest margins arising from re-pricing maturing loans.

“At ANZ, the level of provisions for doubtful debts should fall in the year ahead and more significantly in 2011.

“Net profits should be higher, but we have an increase of 14 per cent in the average weighted number of shares on issue which will adversely affect the growth in earnings per share.”

Mr Goode said ANZ’s capital position was “strong” with a Tier 1 ratio of 10 per cent, after allowing for acquisitions already announced and the bank’s recent $2 billion preference issue.

“In the new regulatory environment, we will need higher capital than we have historically held, and with our expansionary aspirations, I cannot see capital buy-backs.”

He said the bank’s profit outlook in the coming year would be influenced by many factors, “including headwinds such as uncertainty about whether our Global Markets business can continue to perform as well; a continued high level of doubtful debts in New Zealand; the adverse impact of a higher Australian Dollar; and a 14 per cent higher number of shares to be serviced.

“However, we have tailwinds from the recovering economies in Australia, New Zealand and the region providing scope for improved lending growth; steady to improved interest margins; and the prospect of lower overall provisions for doubtful debts.”

Mr Goode said Australia had weathered the global downturn because it had been in a strong position when the downturn began.
“It appears that we are coming out of this world financial crisis with unemployment in Australia up from four per cent to six per cent, and Government net debt that might rise to 10 per cent of GDP.

“I am not worried about a Government debt of this size, which is very low on an international comparison.

“We are very fortunate in Australia, compared to citizens of other countries such as the United States and the United Kingdom, who are looking at the prospect of higher taxation.”

Mr Goode said the bank expected that the Federal Government would withdraw its guarantee of wholesale borrowings by the banks “in the near term”.

“ANZ has not needed to use the guarantee on a public term debt transaction since June this year,” he said.

“Also, we expect in due course to see the withdrawal of the domestic guarantee on bank deposits, which we do not consider necessary. It may well be that it will be followed by a guarantee scheme for deposits with a much lower ceiling than at present.

Mr Goode will be replaced as ANZ chairman by John Morschel.

AAP