News

By Savyata Mishra

(Reuters) -ANZ Group Holdings Ltd said on Friday intense competition in retail banking and higher cost-of-living pressure will result in a "tough" second half, despite the lender logging a record half-year profit in line with expectations.

ANZ joined rival National Australia Bank (OTC:NABZY) (NAB) to flag an uncertain outlook arising from fierce lending and deposit competition, a slowing property market, and sustained high inflation.

While the lender did not disclose how the net interest margin (NIM) - the closely watched profitability metric - changed across the two quarters in the first half, finance chief Farhan Faruqui said the pressure had started to appear, in comments published by the bank alongside the result.

"It's probably most profound in the Australian home loans and household deposits. If not there, we're getting close to the point where we are potentially reverting to the long-term trend in the sector of margin compression."

ANZ's NIM was up at 1.75% in the reported period, but missed average analyst estimate of 1.88%.

"The next six months will be more difficult than the last. Competition in retail banking is as intense as it has ever been, both in Australia and New Zealand," Chief Executive Officer Shayne Elliott said.

With margin benefits from higher rates set to plateau, Citi analysts said the June and September quarters will serve as a litmus test for the banking sector.

Cash profit from continuing operations at Australia's fourth-largest bank rose nearly 23% to A$3.82 billion ($2.56 billion) for the half and above consensus estimate of A$3.81 billion, owing to a "solid revenue growth across the board", it said.

Shares of the company were up 1% after recouping earlier losses, while the broader market was slightly higher.

After announcing results on Thursday, NAB's shares tanked after the lender said its margins had peaked in the last half.

Westpac and Commonwealth Bank of Australia (OTC:CMWAY) are set to report results next week.

($1 = 1.4945 Australian dollars)