ANZ Group’s (ASX: ANZ) first-quarter fiscal 2026 underlying profit rose 17% to $2.0 billion. A sharp 8% cut to underlying operating expenses was the key driver, further aided by modest loan growth and a slight improvement in underlying net interest margins, or NIMs. Shares rose 8% on the day.

Why it matters: The current pace of cost-cutting is unlikely to continue, and our expectation for full-year expenses to fall 3% is unchanged. Cost-cutting was driven by redundancies in the first quarter, with over 60% of 3,500 planned job cuts complete by December 2025.

  • We maintain our forecasts, which assume cost/income falls from over 53% in fiscal 2025 to 47.5% by fiscal 2028. We expect earnings to benefit from cost savings in the short term, and for loan growth to resume as projects complete and as consistency and the speed of loan approvals improve.
  • Despite competitive pressures, NIM met our expectations, up 2 basis points to 1.56%. ANZ’s home loan book grew only 0.5% over the quarter. But given previous reliance on cashback offers and discounts, this is a reasonable outcome.

The bottom line: We maintain our $33 fair value estimate for wide-moat ANZ Group. Shares are overvalued. The market now appears overly confident that the company will achieve long-term strategic growth targets, despite integration and governance risks.

  • Management is targeting a return on tangible equity toward 13% by fiscal 2030, but we forecast no improvement beyond 12%, from 10.5% last year. Earnings growth is more dependent on strong revenue growth, which we view as challenging, given the competitive landscape.
  • We don’t expect the strategic reset to support market outperformance. ANZ is likely to lose market share in fiscal 2026 and merely get back closer to market growth rates in fiscal 2027, helped by faster loan approval times, an improved digital offering, and an increase in home lender numbers.

ANZ group needs to hold market share and deliver margin and efficiency improvement

ANZ Group is the owner of ANZ Bank, the smallest of Australia’s four major banks by market value and the largest bank in New Zealand and the Pacific, offering a full range of banking and financial services to the consumer, small business, and corporate sectors. Like the other major banks, ANZ Bank has a well-recognized and trusted bank brand, large advertising and marketing budget, and customer fulfilment capacity (branches, systems, funding capacity) to capitalize on this brand equity. We see the firm’s strategy to simplify and focus on its highly profitable core banking operations as logical. The acquisition of Suncorp Bank provides an avenue to leverage benefits of current investments in its retail banking platform. These investments include better digital offerings and more lenders. Integration risk can not be ignored, but overall we believe the acquisition is strategically sound.

Tight underwriting standards, lender’s mortgage insurance, low average loan/valuation ratios, a high incidence of loan prepayment, full recourse lending, and a high proportion of variable rate home loans, combine to mitigate potential losses from mortgage lending.

The main current influences on earnings growth are modest credit growth, with households and businesses adjusting to lower borrowing capacity after a sharp increase in rates and slowing economic growth. Businesses are expected to be more cautious on making large investments as households rein in discretionary spending. Margins fell as banks competed aggressively in a low credit growth and high refinance market, but margins have stabilized, and we expect competition to be rational in the medium term. Despite productivity benefits, operating expenses are increasing as investments to make the bank more efficient and competitive across its digital offerings—namely home loans and savings.

In Asia, ANZ Bank targets large clients and has walked away from lending to small business. Given ANZ Bank would have no competitive advantage against local (and much larger) lenders, we support the revised strategy.

Bulls say

  • ANZ wins market share in home loans and retail customer deposits after rolling out an improved digital offering.
  • A large institutional client base and geographic footprint leaves ANZ well placed to support customers transitioning to net zero and moving supply chains in response to US tariffs.
  • Nonbank lenders and even nonmajor banks reliant on wholesale funding and equity markets cede market share back to the major banks in a rising rate environment.

Bears say

  • ANZ Bank sinks money into new systems but remains subpeer on returns on equity, cost efficiency, and net interest margins.
  • Sourcing more funding from institutional customer deposits, which are more price-sensitive, ANZ has less margin upside from higher interest cash rates than major bank peers.
  • After acquiring Suncorp Bank, issues with loan processing and integration result in the bank ceding market share and spending more than originally guided on integration.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

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Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.