ANZ Group Holdings Ltd (ASX: ANZ) CEO Shayne Elliott has warned investors that there could be more economic and bank pain to come.
Over the past year, there has been a large increase in interest rates in both the US and Australia. Other central banks globally have also increased their interest rates.
While there have been some specific problems for some banks, the rapid rise of interest rises has widespread ramifications. For Silicon Valley Bank (SVB) and Credit Suisse, it has been a disaster.
But ANZ's boss thinks there could be more impacts to come and that it could hurt some areas of the economy.
ANZ's warning about the banking sector
Elliott suggested that the current problems hitting the global financial system are similar to the 1980s in the US. It was also a time of strong inflation and higher interest rates, which exposed "a lot of poor businesses to that risk", Elliott said, according to the Australian Financial Review.
The AFR quoted Elliott:
The GFC was fundamentally a crisis around the quality of assets and the loans that banks make, and that's not what the risk is here. This is a different issue. This is really to do with the global war on inflation and how central banks are raising rates very quickly in order to combat that, and that has casualties.
According to Elliott, the size and speed of the increase in interest rates means that businesses and households are at risk "because that really has an impact on cost of living, taking money out of their pocket, and not everybody can adjust so quickly, and those that can't typically fall over".
He also warned there could be less credit available in the economy as banks "focus more on liquidity and the market emphasises capital adequacy".
Elliott was also quoted talking about how ANZ is handling the situation:
The first thing we're going to do is protect the bank, our balance sheet, make sure we can continue to operate, liquidity, capital, protect our people, look after our customers.
We have to adapt to this new world of capital markets.
There's always a casualty in these events. Of course, the regulator and governments are trying to sort of limit the blast radius, if you will. They're not intentionally trying to cause harm, but it's inevitable, and they try to do the best to limit the damage so that lots of people have a small amount of pain, as opposed to a small number of people having lots.
Strong dividend expected
Even if ANZ is feeling cautious about the current situation, the large ASX bank share is expected to generate $2.39 of earnings per share (EPS) after the increase in interest rates, according to Commsec.
The ASX bank share is projected to pay an annual dividend per share of $1.58. This translates into a grossed-up dividend yield of 10%.
