ASB Bank income jumps $1b hurdle

ASB Bank rang up a $382.8 million full-year profit yesterday, 21 per cent better than last year thanks to an increasing share of the rural, business and home mortgage markets and improved cost efficiency.

"In the past decade we have been increasing our focus on the business and rural markets while maintaining our stronghold on the home mortgage market, and the benefits of this strategy are flowing into our profit performance," said chairman Gary Judd.

ASB, owned by Commonwealth Bank of Australia, saw operating income break through the $1 billion mark for the first time, to $1.05 billion. Net interest earnings rose 14 per cent to $781 million and other income was up 8 per cent to $268 million.

Mr Judd said home mortgage and other personal lending was up 19 per cent "and remain the cornerstone of our operations".

ASB's commercial and business lending grew 23 per cent and its rural lending 22 per cent. Those gains were "key drivers behind the bank's overall growth and strong performance", he said.

Operating expenses were up 5 per cent to $470 million but as a ratio of total operating income they fell to 44.81 per cent from 47.65 per cent.

Last year, the bank's bottom line grew a comparatively modest 14 per cent after years of 20 per cent-plus growth. That slower growth was down to investment in IT systems and redundancy costs.

ASB managing director Hugh Burrett said that this year the bank had "seen everything coming together."

"Market share and growth in the balance sheet has been healthy again, and from a technology point of view, some of the innovations we've put in are starting to help. That's why you're starting to see the overhead dropping."

Burrett said that when the bank began to focus on cutting the overhead ratio some years ago it was at 60 per cent.

"We always thought if we got to 50 per cent we'd be doing extremely well and here we are at under 45 per cent - that's really gratifying."

ASB, recognised by UK Banker Magazines as New Zealand's "Bank of the Year", said the recent mortgage price war had actually helped it increase lending to record levels and lift its market share.

But Burrett agreed with ANZ National Bank chief executive John McFarlane, who said on Tuesday that the rates being offered by banks in the Bank of New Zealand-initiated battle for market share could not be sustained.

"Like all our other competitors, we're just trying to manage the margins while we work through this period of intense competition," said Burrett.

ASB's current share of the home lending market was about 23 per cent, its share of the business market was between 10 and 15 per cent and in the rural market its share was about 12 per cent, with the personal banking share about 17 per cent, he said.

The New Zealand insurance businesses of CBA, trading mainly under the Sovereign brand, posted a 35 per cent increase in net profit to $74 million on stronger business volumes across the board and improvements to operations and systems infrastructure.