ANZ New Zealand, the country’s biggest bank, said its net profit including gains and losses from economic hedges fell by 7 per cent to $2.135 billion for the September year.

The bank said it was raising its bad debt provisions in advance of what it expects will be more difficult conditions ahead.

ANZ NZ’s cash profit was up 10 per cent at $2.262 billion.

Chief executive Antonia Watson said it was a good result and one that positioned the bank well for current difficult economic conditions.

“The year was very much a game of two halves. The good performance of the bank in the first half of the 2022-2023 financial year reflected the tailwinds of the Covid fiscal stimulus in the economy together with a series of rapid increases in the official cash rate,” she said.

“But in the second half of the year our performance slowed due to the more difficult environment New Zealand is entering,” she said.

Watson said the bank was well-placed to support its customers and the New Zealand economy as tougher times approach.

ANZ NZ’s revenue for the year was $5.013b, remaining broadly flat in the second half.

Expenses for the year were up $13m, an increase of 1 per cent, driven in part by inflationary pressures on staff and vendor costs.

Market share picked up in the second half and home lending was up 3 per cent for the year despite the difficult conditions.

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Antonia Watson says the bank is well-positioned to support its customers and the New Zealand economy as tougher times approach.

Business and agri lending, however, was down 2 per cent due to a combination of lower commercial property lending and customers remaining cautious about taking on further debt while inflation and interest rates were high.

Customer deposits were up 2 per cent.

Net interest margin – the difference between what the bank borrows money at and what it then lends it out at – dropped by seven basis points in the second half of the year.

“That’s because the slower housing market meant banks were fighting even harder for customers, global inflationary pressures saw wholesale interest rates rise and many New Zealanders moved their savings from on call accounts to higher interest earning term deposits,” Watson said.

Watson said the bank was prepared for a potentially difficult year ahead, with the new Government facing several fiscal challenges and central banks around the world still trying to tame inflation.

“New Zealand is probably headed into tougher times,” she said.

“Inflation is expected to remain above the Reserve Bank’s target range, interest rates will likely be higher for longer and unemployment is expected to rise.”

She said the bank expected to see more stress among businesses and mortgage holders.

“The majority of our home loan customers have moved onto higher interest rates, and most have adapted well. A third of home loan accounts are ahead by six months or more.”

But around 34 percent were on rates lower than five percent with around a third of those rolling onto higher rates over the next six months.

The bank was closely monitoring how customers were managing and was seeing an increase in the number of people falling behind on payments by 90 days or more.

As a result, she said, ANZ NZ had increased the amount put aside for potential bad debts by $144m, increasing the total credit impairment provisions to $857m.

The bank is also putting more resources into the customer hardship team in preparation.

In the past 12 months the bank contacted more than 290,000 customers identified as most at risk of financial stress to offer reassurance and support.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.