ANZ Group Holdings Ltd.’s earnings climbed as higher interest rates buoyed lending profitability, while its chief executive officer warned of a challenging economic environment ahead.

Cash profit rose 14% to A$7.41 billion ($4.71 billion) in the 12 months through Sept. 30, according to a statement Monday. That just missed the average analyst expectation of A$7.51 billion in a Bloomberg survey.

Australian bank CEOs are cautioning that the tailwind of rising interest rates will give way as borrowing costs peak, putting further pressure on net interest margins — a key gauge of profitability. That’s likely to keep competition strong for home loans as more homeowners roll off ultra-low fixed mortgages from during the pandemic on to much higher floating rates.

“The external environment is likely to remain challenging,” Chief Executive Officer Shayne Elliott said in the statement. “The full impact of higher interest rates is expected to continue to impact economic activity as well as household and business budgets.”

Elliott said his firm’s strong balance sheet will allow it to help customers in need in what he expects will be another year of intense cost-of-living pressures.

“Our customers have so far proven resilient, with a relatively low level of delinquencies despite the current interest rate tightening cycle,” Elliott said. “That said, we know circumstances can change quickly.”

The firm is continuing with its efforts to acquire Suncorp Bank, with a tribunal decision expected in February.

What Bloomberg Intelligence Says

ANZ’s dividend could fall in 2024 on margin driven weaker earnings. Expense inflation, 3% headcount growth and normalizing credit from 2023’s benign level are also headwinds. However the lender could pay an A$4 billion buyback if its acquisition of Suncorp Bank fails — Matt Ingram, senior industry analyst at Bloomberg Intelligence

(Adds Bloomberg Intelligence analyst reaction in eighth paragraph)