ANZ 3Q26: Strong Credit Profile Supports Resilience Amid Growth Moderation

Key Highlights

• Resilient earnings: Operating income slightly decreased to AUD5.6 billion, while loans remained stable at AUD846 billion and deposits grew 1% YoY to AUD786 billion.
• Solid asset quality: Non-performing loan NPL ratio improved to 0.55% from 0.77%, reflecting resilience in lending portfolio.
• Prudent provisioning approach: Impairment provisions rose to AUD4.5 billion, with almost AUD2.0 billion in forward-looking provisions providing a buffer against potential stress.
• Strong capital and liquidity: CET1 ratio remained robust at 12.5%, while LCR and NSFR stood at 131% and 113%, respectively, comfortably above regulatory minimums.

• Housing growth faces headwinds, but low LTV provides a buffer: Higher rates and tax changes may weigh on lending growth, while ANZ’s low 39% LTV provides a buffer against property price declines.
• Recommendation: We remain positive on ANZ’s outstanding bonds and recommend bondholders hold.

Following our previous 2Q26 Credit Update, ANZ has released its 3Q26 results, providing further insights into its financial performance, asset quality and lending outlook. This update reviews the key developments since our previous assessment.

Previous Article Update:Credit Update: ANZ – High-Quality Defensive Credit with Compelling Yield Pickup (5.0%–6.0%)

ANZ’s Stable 3Q26 Performance Amid Economic Uncertainty

As shown in Table 1, ANZ delivered a stable 3Q26 performance (June 2026), supported by stable lending and deposit growth. Net loans and advances remained broadly unchanged at AUD846 billion, while customer deposits increased by 1% YoY to AUD786 billion. Net interest margin (NIM) edged up by 1 bps to 1.54% from the 1H26 average of 1.53%, while operating income declined by 1% YoY to AUD5.61 billion mainly due to driven by foreign exchange translation  (Table 1).

ANZ’s implied cost-to-income ratio improved from 51.2% to 49.7%, reflecting improved operating efficiency from continued efforts to simplify the organisation and optimise third-party spending. The impairment charge increased slightly from AUD96 million to AUD102 million, reflecting prudent forward-looking adjustments for a more challenging economic environment. Overall, ANZ’s 3Q26 results demonstrate stable underlying performance, supported by stable lending, deposit growth and continued cost management despite a challenging operating environment.

Table 1: ANZ Financial Highlight

Asset Quality Remained Resilient Amid Macro Uncertainty

Asset quality remained resilient in 3Q26, with the non-performing exposure (NPL) ratio improving to 0.55% from 0.77% in 3Q25. The improvement was supported by lower watch and control list exposures and a low individual provision loss rate of 3 bps, indicating continued resilience in ANZ’s lending portfolio.

Although total provisions for credit impairment increased to AUD 4.48 billion (3Q25: AUD 4.28 billion), this reflects a prudent approach to maintaining strong balance sheet buffers amid geopolitical uncertainty and higher domestic interest rates. AUD 2 billion above ANZ's base-case economic loss scenario, providing a strong buffer against macroeconomic and geopolitical uncertainty. This conservative posture is reflected in ANZ’s Collective Provision balance to credit Risk-Weighted Assets (CRWA) coverage ratio increased from 1.12% in 3Q25 (June 2025) to 1.20% in 3Q26 (June 2026) to provide a significant cushion against potential future volatility.

Strong Capital and Liquidity Profile

ANZ’s capital and liquidity positions remained robust in 3Q26. The Common Equity Tier 1 (CET1) ratio increased to 12.51% as of June 2026, well above the minimum regulatory requirement of 10.25%. The strong capital position was primarily supported by earnings generation (+40 bps), partially offset by higher credit risk-weighted assets (-15 bps), driven by volume growth in the Institutional and Business & Private Bank divisions, as well as regulatory capital adjustments, including IRRBB (-18 bps).

Liquidity metrics remained strong, with the quarterly average Liquidity Coverage Ratio (LCR) at 131% and the Net Stable Funding Ratio (NSFR) at 113%, both well above the regulatory minimum requirement of 100%.

Our View: Housing Lending Growth Faces Headwinds from Higher Rates and Tax Changes, but Credit Quality Remains Resilient

We expect lending applications to moderate in the coming quarters, mainly due to elevated domestic interest rates and tax changes. However, ANZ’s low loan-to-value (LTV) ratio provides a sizeable buffer against property price declines. As of 1H26 (March 2026), the average LTV ratio, adjusted for property appreciation and principal repayments, stood at 39%, below its five-year average of 42.8%. Assuming loan balances remain unchanged, a 20%, 40% and 60% decline in property values would raise the LTV to 48.8%, 65.0% and 97.5%, respectively. Even under these stress scenarios, the average LTV would remain below 100%, indicating a substantial equity buffer across the mortgage portfolio.

Overall, we view the expected slowdown as a moderation in lending growth momentum rather than a deterioration in credit quality. This is aligned with our view of the potential implications of the proposed property tax reforms for Australia’s banking sector, as discussed in our previous article: Australia's Proposed Property Tax Reform: What Is the Impact on Australia's Banking Sector

Recommendation

Overall, ANZ’s 3Q26 results demonstrate strong credit fundamentals, supported by resilient asset quality, robust capital and liquidity buffers. While impairment charges reflect macroeconomic pressures, these remain manageable rather than a material deterioration in asset quality.

Looking ahead, slower housing credit growth may weigh on earnings momentum. Nevertheless, ANZ’s strong balance sheet and asset quality continue to support its position as a high-quality and defensive credit.

We recommend existing bondholders to hold and remain positive on ANZ’s outstanding bonds (Table 2 and 3).

Among the recommended bonds, we favour ANZ 6.124% 25Jul2039 Corp (AUD), a Tier 2 bond offering a yield to call of around 6.6%. Both bonds currently offer attractive yields above 6% and fit our long-duration preference under the barbell strategy, alongside shorter-duration bonds.

Table 2: ANZ’s Senior Unsecured Bond

Table 3: ANZ’s Tier 2 Bond