What happened to the ANZ share price?
Go back to mid-July last year, and ANZ Banking Group [ASX:ANZ] was struggling to stay above $23. Since then, though, shareholders have been enjoying its steady rise. After releasing its quarterly update today — an impressive 31% increase in profit — ANZ shares are trading at $30.70. That’s a 35% jump in just over six months.
Why have ANZ shares exploded higher?
In April 2015, ANZ was trading at all-time highs. However, ANZ and the other banks were hit on two fronts. First, the need to raise capital to meet regulatory requirements by APRA. And second, an increase in bad debts and pressure on their margins.
As interest rates fall, the banks’ net interest margins — the difference between the rates a bank borrows and lends at — contract, putting pressure on their profits. But as the easing cycle appears to have come to an end, and bad debts have reduced, ANZ’s profit is on the rise.
What now for ANZ Banking Group?
While today’s result is impressive, attention now turns back to the economy. As the primary driver of banks’ profits, all eyes will be watching to see if the housing market can continue its run.
The other factors to watch are wages growth, and the unemployment rate. Without any meaningful growth in wages, it becomes harder for the housing market to maintain its momentum. In the meantime, though, ANZ shareholders will be enjoying their fully franked, 5.3% yield.
By Matt Hibbard