Share buyback, Suncorp Metway deal won’t dent ANZ’s credit profile

S&P expects the SML acquisition to be completed in mid-2024.

A planned A$2b share buyback and its pending acquisition of Suncorp Metway (SML) won’t dent the credit profile of The Australia and New Zealand Banking Group (ANZ), reports S&P.

ANZ had announced a cash profit of A$3.55b for the six months that ended on 31 March 2024. The results of all its key business decisions are in line with the ratings agency’s expectations.

“We expect ANZ's capital levels to remain strong despite the A$2 bon-market share buyback. ANZ will manage its common equity tier 1 (CET1) ratio above 11%, higher than the 10.25% prudential requirement,” S&P said, noting that as of 31 March, ANZ's CET1 ratio stood at 13.5%. 

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On a pro forma basis, considering both the pending acquisition of SML and the share buyback, ANZ's CET1 ratio will fall to 11.8%, S&P said.

S&P expats the sale of SML to ANZ to be completed in the next six months, after the Australian Competition Tribunal's decision on 20 February granted authorisation for the sale. 

“Although the sale is still subject to the Treasurer's approval and a legislative change, we expect it to be completed in mid-2024. If that happens, the acquisition should help ANZ solidify its competitive position and geographic diversity,” S&P said.

ANZ’s capital return is consistent with many domestic peers, who are also reducing the considerable capital buffers they have held above their targeted and regulatory requirements.

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Low unemployment over the next two years should help keep ANZ's credit losses low and close to pre-pandemic levels, in line with those for other major Australian banks. 

Nevertheless, banks in Australia, including ANZ, remain exposed to a jump in credit losses due to high household debt, elevated interest rates and prices, and global economic uncertainties, S&P warned.