BNZ chief forced to defend big return

By Richard Braddell

While disappointed investors tore $A1.5 billion ($1.86 billion) of its parent National Australia Bank's market capitalisation on Thursday, Bank of New Zealand chief executive Mike Pratt was cast in the position of defending an extraordinarily good profit.

Its net profit of $358 million for the year ended September was up 24 per cent compared with the $288 million last year, resulting in a return on equity of 27.4 per cent.

NAB's record net profit of $A2.8 billion was close to the $A3 billion investors had expected. But confidence was undermined by the revelation that costs had blown out in the second half.

The same was not true of BNZ. The result showed revenue, asset growth and profit growth that restored its position as the country's top bank. But in contrast to its parent, it also demonstrated that costs were under control, falling 5.1 per cent in the year, while NAB's rose 5.1 per cent in the second half.

Inevitably, in a week in which three banks announced record earnings, Mr Pratt was faced with defending the BNZ's and the industry's profitability at a time when branch closures across the industry continued to anger customers.

Mr Pratt had two responses. The first, that 91 per cent of transactions were no longer done in branches. The second, that the profit was reasonable compared with some companies in other industries and those of successful global banking players only too keen to devour less successful operators.

He had a lot to be pleased with. The $358 million profit was not the first over $300 million achieved by BNZ. In 1997 it reported $335 million but that result was bolstered by substantial writebacks of previous bad debt provisions, the latest one a writeoff of $22 million.

And possibly of greater importance, the bank's image has improved.

Often seen as suffering from poor staff and customer relations, surveys by AC Nielsen and Auckland University's marketing department have the bank as the only one of the big five where customers have reported higher satisfaction.

For the first time in several years, the bank's customer approval rating has gone above the industry average, having broken away from the bottom ranked WestpacTrust and ANZ.

The bank's success in containing costs while boosting revenue has been the key to its performance. The cost-to-income ratio, a measure of bank efficiency, was down from 61.4 per cent to 56.5 per cent, but still well in excess of the NAB group's target of 40 per cent.

Expense control will continue to focus on development of electronic channels, including BNZ's internet service launched this week.

It cost $2 million to introduce and is expected to be profitable after the first year with 20,000 customers using it.