ANZ chief executive Shayne Elliott is optimistic about prospects for the rest of the financial year after the lender lifted its first-quarter cash profit 31 per cent to $2 billion.
A strong performance from ANZ's local retail and institutional businesses meant that, after stripping out the impairments that led to an 18 per cent decline in last year's full-year profit, earnings for the three months to December 31 were up 20 per cent on the prior corresponding period.
ANZ increased its market share of both deposits and Australian home lending, with the latter helping to reduce the average risk weight of the lending book by 0.50 percentage points.
With provisions of $283 million for the quarter, the bank now expects its full-year charge for bad and doubtful debts to be lower than predicted just three months ago.
"It is still too early to be definitive about the year as a whole, however the first quarter, together with our experience during first six weeks of the second quarter, suggests the credit environment is marginally better than we expected at the time of our 2016 full-year result," Mr Elliott said.
Announcing its $5.9 billion full-year profit back in November, ANZ said it had expected its provision charge in 2017 to remain broadly the same in percentage of gross lending assets terms.
"One quarter doesn't make a year and we know that historically, for our business anyway, the first quarter is usually a low point of credit costs; it's usually the most benign for all sorts of seasonal reasons," Mr Elliott said.
"(But) with that proviso our first quarter isn't always the best indicator, you'd have to say it's looking a little more optimistic today."
Investors greeted the result warmly, driving up ANZ shares by as much as 2.1 per cent in morning trade. By 1256 AEDT, they had fallen back to $30.69, still up 48 cents or 1.6 per cent.
ANZ, which only gives detailed financial information with its half- and full-year results, said its net interest margin had declined "several" basis points due to lower earnings on capital and higher funding costs.
Rival Commonwealth Bank this week reported that its net interest margin - the difference between the interest a bank makes on loans and the interest it pays on funds to finance them - decreased by 0.04 percentage points over the first six months of its financial year.
"Overall, we have seen good progress in the first quarter," Mr Elliott said.
"Clearly though, there is still a great deal to do to sustain this progress in a low growth environment."
The impairments that hit the 2015/16 full-year profit were related to a restructure of the business under Mr Elliott, who has since announced the sale of ANZ's 20 per cent stake in Shanghai Rural Commercial Bank, the UDC Finance business in New Zealand and ANZ's retail and wealth businesses in five Asian countries.
The sales are in progress and are expected to complete in the current second half and the first half of 2017/18.
ANZ'S STRONG Q1
* Cash profit up 31pct to $2b
* Net profit up 8pct to $1.6b
* Revenue up 7pct