The ANZ Bank has surprised the market by revealing a $1.5 billion buyback on Monday night, only hours after the key bank regulator gave it and other lenders regulatory relief to handle customer loan repayment deferrals during the worsening Covid delta variant lockdowns in NSW, Victoria, and now South Australia.
ANZ Bank declared it had the financial strength to support pandemic-affected customers while also returning surplus capital to investors.
Amid investor fears that the worsening lockdowns in NSW, Victoria and now South Australia could cause banks to delay capital management plans,
ANZ chairman Paul O’Sullivan announced the buyback on Monday night saying.“Despite the very real challenges being experienced by many of our customers, we have the financial strength to continue to support our customers, while also returning surplus capital to shareholders.”
“Our capital position may allow future capital returns to be considered, however, we will continue to focus on balanced and prudent outcomes for all stakeholders,” Mr O’Sullivan said.
The Commonwealth Bank was widely expected to announce a buyback in just under a month’s time when it reports its 2020-21 annual results.
The ANZ’s move will see bank shares surge on Tuesday on speculation they will join in the buybacks, despite the selloff gathering pace around the world on worsening Covid infections of the Delta variant.
All four major banks are sitting on billions of dollars in capital in excess of regulatory requirements after banks suspended dividends last year and built provisions for bad debts that ended up being overly cautious.
At its half-year results in May, ANZ said it had common equity tier 1 capital of 12.4% of risk-weighted assets, compared with the banking regulator’s “unquestionably strong” requirement of 10.5% standard.
ANZ said the what it called a “modest” on-market buyback would reduce its capital by 35 basis points to around 12% (subject to what happens between now and the end of September and its financial year).
ANZ CEO Shayne Elliott, who joined other bank CEOs over the weekend in saying said the lender would offer support pandemic affected customers, said ANZ was “ready and able to provide assistance to those that need it”.
“After taking into consideration the ongoing pressures in some parts of the economy due to COVID, including the current lockdowns in parts of the country, the strength of our balance sheet and ongoing financial performance means we are in a position to return a modest amount of surplus capital to shareholders through a buy-back of shares on-market,” Mr Elliott said.
“The strength of our business means we are well placed to fulfil the needs of our customers and the broader community while still actively managing our capital,” Mr Elliott said in the statement to the ASX that was filed just before 7pm.
In its statement, APRA said that “For eligible borrowers, ADIs will not need to treat the period of deferral as a period of arrears or a loan restructuring. This will apply to loans that are granted a repayment deferral of up to three months before the end of August 2021. This will provide banks and borrowers with additional flexibility to manage the period ahead.
“The measures apply regardless of whether or not the borrower has previously been granted a repayment deferral due to the impact of the pandemic.
“For transparency, APRA will require ADIs to publicly disclose and report the nature and terms of any repayment deferrals and the volume of loans to which they are applied. ADIs must also still continue to provision for these loans under relevant accounting standards,” the regulator said.