Australian bank ANZ says trading conditions remain difficult in New Zealand, and its subsidiary, ANZ National, will see lower earnings this year.
In a trading update for the four months to January, the bank says volumes have been flat and margins are under pressure due to higher wholesale funding costs, intense competition for deposits and costs of breaking mortgages.
While it says total costs are under control, ANZ expects provisions for bad debt to double to nearly $600 million in New Zealand.
ANZ chief executive Mike Smith expects a drop in earnings.
He says the New Zealand economy is "well and truly in recession" but the company is taking sensible steps to navigate through the difficult environment.
ANZ has taken a $A130 million charge against income reflecting its part ownership of ING New Zealand.
Overall, ANZ warned investors it expects to cut dividends, as it forecast a flat full-year profit and a jump in bad debts, though it stresses its underlying business is performing well.
