Charge for bad debt 'unusually low' - BNZ

BNZ's charge for bad and doubtful debts fell to $34 million in the six months ended March 31. Photo / Mark McKeown

Bank of New Zealand, the local unit of National Australia Bank, said a 64 per cent drop in its provision for bad and doubtful debts in the first half meant the charge was now below what could be regarded as normal levels, especially given looming economic challenges.

BNZ's charge for bad and doubtful debts fell to $34 million in the six months ended March 31, the lender said today. That's down from $95 million a year earlier. Annual impairment charges were around $185 million in 2009 and 2010, in the wake of the global financial crisis.

The improvement in the latest half reflected lower provisions on business loans, "strong'' credit card collections and an overall improvement in credit quality "as the economic recovery continues". But there are still risks, chief executive Andrew Thorburn told BusinessDesk.

"$34 million is an unusually low figure," he said. "There are challenging times ahead for smaller businesses." He cited fallout from the on-going impact of the Christchurch earthquakes, the devastation of the kiwifruit industry from the Psa bacteria and the exchange rate.

The bank today reported a 36 per cent jump in first-half profit after widening its interest margin, lifting deposits and taking a lower charge for bad debts. Cash earnings were $385 million in the six months ended March 31, from $283 million a year earlier, the lender said in a statement.

The net interest margin widened by 17 basis points to 2.41 per cent, which it said reflected strong growth in demand for variable rate mortgages and a favourable product mix.

Retail deposits climbed by 10.2 per cent to $33.5 billion and the bank lifted its market share by 70 basis points to 18.7 per cent. BNZ's charge for bad and doubtful debts fell 64 per cent to $34 million, reflecting lower provisions on business loans, "strong'' credit card collections and an overall improvement in credit quality "as the economic recovery continues".

BNZ's Tier One capital ratio was 9.59 per cent.

Parent National Australia Bank posted a 6 per cent gain in first-half cash earnings to A$2.8 billion, while net profit fell about 16 per cent to A$2 billion, reflecting charges in its UK business.

The parent's earnings were dented by the continued poor performance of its UK banking business, where it is overhauling its operations and plans to eliminate 1,400 jobs. Its charge for bad and doubtful debts rose by 36 per cent, with most of that reflecting "the significant deterioration in asset quality".

Shares of National Australia fell 1.5 per cent to A$24.24 on the ASX today and have climbed 5.4 per cent this year. The company is rated 'outperform' based on the consensus of 19 analyst recommendations compiled by Reuters.