October has been a strong month for the Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price. At the time of writing, it has gone up by around 10% for the month.
Let's compare that to the return of the S&P/ASX 200 Index (ASX: XJO) — it's risen by around 5%.
In other words, the ANZ share price has outperformed the overall market by around 5% in just one month. That's a pretty solid performance in a short amount of time.
But what was noteworthy about October? There were (at least) two major things that happened.
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RBA slows rate rises
On 4 October 2022, the Reserve Bank of Australia (RBA) decided to only increase the cash target rate (the interest rate) by 25 basis points. This came after a number of consecutive monthly increases of 50 basis points.
The RBA noted that the cash rate had "been increased substantially in a short period of time".
But it also said:
The board is committed to returning inflation to the 2-3 per cent range over time. Today's increase in interest rates will help achieve this goal and further increases are likely to be required over the period ahead.
Why was this important? Investors recognise that a higher interest rate can boost a bank's lending margins because banks are increasing the interest rate on loans quicker than for savings accounts.
But, there is a concern that with how quickly interest rates have gone up, it could mean that a sizeable number of borrowers run into difficulties with keeping up their repayments.
The slower increase of the RBA interest rate could be a signal that the size of interest rate rises will continue to be slower and that the peak could be lower. If that happens, then ANZ's loan book could perform better than previously expected.
FY22 result
ANZ also reported its result for the full year ended 30 September 2022. How the bank performs, and is expected to perform, can have a big impact on the ANZ share price.
It showed that statutory net profit after tax (NPAT) grew by 16% to $7.12 billion. Continuing operations cash profit increased 5% to $6.5 billion.
ANZ also grew the annual dividend per share by 3% to $1.46 per share, adding more returns to shareholders.
The ASX 200 bank share also said that it had "restored momentum in Australian home loans with application times back in line with peers".
ANZ also revealed it expects to make around $1.5 billion of net interest income in FY23 from the higher rates and around $3.2 billion in FY25, assuming interest rates follow the path currently forecast by ANZ Research.
Considering share prices (and dividends) are likely to follow the direction of the profit, investors may have been pleased to see that ANZ is expecting to make substantially more profit in the next few years.
ANZ share price snapshot
Despite the large rise over the last month, ANZ shares are actually still down by around 9% in 2022 to date.
