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Australia’s fourth-biggest lender, ANZ, said on Monday surging demand for its institutional banking services propelled its annual profit to a record but an aggressive campaign to sell more mortgages flattened its margin, sending its shares lower.

As Australia’s banks redirect focus away from their traditional earnings engine of mortgages, where interest rate increases have spurred competition, ANZ has benefited from an institutional payments platform that it says processes some of the world’s biggest cross-border transactions.

That pushed net profit from the bank’s institutional unit up 53% to overtake its retail unit, by dollar value, in the year to September, and helped the Melbourne-listed company grow overall profit 14% to A$7.4 billion ($4.7 billion), just missing a Visible Alpha consensus forecast of A$7.56 billion.

But analysts expressed concern about a faster-than-expected narrowing of profit margin from the bank’s retail unit, the only one of Australia’s so-called big four lenders that has persisted with offering cash handouts to lure mortgage customers looking for a cheaper deal.

Even as ANZ’s institutional division grew its net interest margin (NIM) - the interest it collects on loans minus interest paid to deposit-holders - the bank’s overall NIM declined 10 basis points to 1.65% in the six months to September, more than NIMs reported this month by rivals Westpac and National Australia Bank.

Aussie ‘big four’ banks hike home loan rates after RBA decision

ANZ shares were down 2.7% by midsession, against a 0.2% dip on the overall market, amid worries about whether the bank was sacrificing profitability for mortgage volume which had lagged in previous years.

The retail banking result “reflects the cost of ANZ growing above market during a period of heightened competition and possibly irrational pricing, notably in mortgages”, UBS analysts wrote in a client note. Barrenjoey analysts said the narrowing of retail banking margins “highlights further pain to come”.

ANZ CEO Shayne Elliott denied forgoing margin to grow mortgages faster than the market, and challenged comments from other banks that have said they were intentionally slowing mortgage growth while competition eroded profit.

“The fact that others have stepped back from the market: I think there’s a lot of people rationalising their loss of share,” he said on a call with journalists.

“That’s for them to answer, not me. All I know is we’ve been winning more customers than we have historically.” ANZ declared a final dividend of 94 Australian cents per share, up from 74 cents a year ago.

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