Deposits help boost BNZ earnings

BNZ chief executive Andrew Thorburn. Photo / Janna Dixon

Good revenue and deposit growth were the key drivers behind a 36 per cent boost in the BNZ's cash earnings in the past year, says its chief executive, Andrew Thorburn.

The BNZ, which is owned by National Australia Bank (NAB), yesterday reported cash earnings of $385 million for the six months to March 31, compared with $283 million in the same period the previous year.

Thorburn said it was a strong result in what had been a restrained economy where there was a lot of competition.

The bank had grown its market share in deposits and its asset quality was improving.

Over the past two and a half years Thorburn said its deposits had grown from around 16 per cent of the market to 18.7 per cent.

That had been driven by good products and a switch from a focus on lending to savings in its business banking unit.

Compared with the September 2011 half-year, BNZ grew retail deposits from $31.8 billion to $33.5 billion, an increase of $1.7 billion or 5.3 per cent.

Its bad and doubtful debts also fell from $95 million to $34 million during the year.

The bank's balance sheet also strengthened and its regulatory capital levels remained well above Reserve Bank requirements.

In the half-year, BNZ completed its second successful European covered bond issue, raising €500 million. The bank also completed two domestic covered bond issues, raising $350 million of six-year funding. While it was seeing the housing market strengthen, Thorburn said consumers were not borrowing a lot more money as unemployment continued to weigh on confidence.

He said its focus in the year ahead would be continuing to do the basics well, finishing a $250 million capital investment programme, and looking at areas where it could grow such as retail deposits, small business and agri-banking.

"There are areas we have got strength in but where we feel we can still grow."

The bank had spent around $200 million on refurbishing its stores and had earmarked a further $60 million to spend on upgrading its technology, working on its online proposal for under-35s and completing work on its three new buildings in Auckland and Wellington.

Thorburn said the biggest challenge for the year ahead was to ensure the bank got its funding position right, which strongly relied on New Zealanders continuing to save.

"New Zealand cannot continue to borrow offshore at the rate they have been for the last decade.

"We are seeing positive signs that people are saving but there remain question marks over whether that is sustainable."

It was also difficult being in a low-growth environment.

"Businesses are not investing. Exports remain strong but Australia is slowing down. We have got very subdued economic growth. The question is where you find that growth."

Thorburn said the bank also had to be careful about how it managed its costs.