KEY POINTS:
A big increase in protection for bad debt has dented the performance of New Zealand's largest bank, ANZ National.
The group recorded a profit before the growth of default loan provisions up 13 per cent in the year to September 30. But this dropped to a net profit after tax up 9 per cent after the provisions were taken into account.
The high provision was a result of the bank's credit costs increasing from $5 million in 2006 to $78 million in 2007.
ANZ National chief executive Graham Hodges said the increase was more a reflection of a particularly low figure in 2006. "We had a normal year in 2007 for provisions but it meant that the underlying business performance was impacted."
Hodges said he would not expect to see a further jump in 2008 and the group's credit quality remained good.
"Our credit quality is still exceptionally good, there are no signs of stress. It is still very low in historical terms."
The company's non-performing loans as a percentage of its total loans decreased from 0.12 per cent to 0.08 per cent over the last year.
Overall, Hodges said he was pleased with the performance across the company, which achieved a net profit after tax of $1.039 billion.
The company's non-institutional New Zealand business net profit was up 6 per cent to $822 million, although its institutional business was down 7 per cent to $210 million.
Hodges said the poor performance on the institutional side of the business could be attributed to two factors.
"Performance in 2006 was boosted by exceedingly strong markets, a performance that was not replicated this year."
Hodges said the company's traders had also found it difficult to make a profit because the market was less volatile.
However, he said the firm's non-institutional business had performed strongly across the board with profit before provisions growth reaching double figures in all areas.
Bucking market turmoil, finance company UDC turned around a poor performance from previous years to record a net profit after tax growth of 26 per cent while ANZ retail, National Bank retail and rural banking all increased their market shares.
Hodges said stronger management and improved margins had helped UDC and the recent downturn in the property market would put the business in a strong position for 2008 versus its peers due to a zero property exposure.
Market share growth in the retail businesses reflected strong performance in the business and efforts to build customer relationships, Hodges said.
Loan growth at 14 per cent to $80.9 billion had been better than expected but mortgages had slowed in recent months with a drop to around 10 per cent annualised growth in the last two months.
"Activity has held up better than we expected. Unemployment is still low and migration continuing. Confidence is still good. There has been a boost in investment and we have seen good and bad across the rural sector."
Deposits were also up 8 per cent to $44.6 billion.
Hodges said he continued to see opportunities for growth in the year ahead, particularly in deposits, as a result of the shakeout from the finance company sector as well as consumer finance, rural banking and merger and acquisition activity.
However, he said, mortgage activity was expected to continue to slow.
ANZ National is part of the ANZ Banking Group, which posted an after-tax profit of A$4.18 billion, up 13 per cent on the previous year.
ANZ chief executive Mike Smith said the standout performer of the group had been the personal division, although New Zealand had also performed well.
Smith said his immediate priority was to focus on re-energising the business by taking up growth opportunities both domestically and in Asia. Despite a degree of global uncertainty, Smith said he expected conditions in Australia, New Zealand and Asia-Pacific to remain supportive.
At a glance
* ANZ National net profit after tax up 9 per cent to $1.039 billion.
* Credit costs up from $5 million in 2006 to $78 million in 2007.
* But CEO says credit quality still good.
