ASB profit down as bad debts jump

ASB has reported its after tax profit fell 17.5 per cent to NZ$425 million in the year to June 30 after its net interest margin fell and its bad debts rose 495 per cent to NZ$238 million.

Issuing a defence of its profit, ASB said it had increased lending and lifted term deposit returns while its parent Commonwealth Bank of Australia had reinvested a further NZ$275 million in capital into the New Zealand bank. It said its profits were not out of line with other New Zealand companies and needed to remain strong to retain ASB's AA credit rating.

"While our profit may appear to be large, despite being significantly reduced, it should not be viewed in purely absolute terms or in isolation from other relevant industry measures," ASB said. "As a major New Zealand registered bank, ASB has a substantial asset base to support and a strong capital base to maintain. ASB's return on assets is 0.68 per cent, and our return on equity is 14.9 per cent," it said.

"Both numbers are low to average compared to other major New Zealand companies. The profit ASB makes represents the return due to our shareholders for investing in our business. In this respect, the common perception of an Australian shareholder bank reaping profits for its own benefit is far from the reality," it said.

"In truth our underlying shareholders are the 777,000 Australians and New Zealanders who hold 80 per cent of the shares in CBA, both directly and indirectly through pension, superannuation and other managed funds. They need to derive a reasonable return on their investments to help them to achieve their savings and retirement aspirations."

ASB said its higher wholesale funding costs and hot competition to win local term deposits meant there had been intense pressure on net interest margins.

ASB's net interest margin fell 21 basis points from 1.78 per cent in June 2008 to 1.57 per cent as at June 30 this year. This contrasts with comments from the Reserve Bank and some others that bank margins had risen.

ASB's total lending rose 4.4 per cent to NZ$53.4 billion, including home loans rising 3.5 per cent to NZ$37.7 billion. ASB said its market share was steady 23.3 per cent. Rural, commercial and corporate lending rose 7.7 per cent to NZ$13.5 billion, although ASB did not break out immediately how much of that was business and how much was farming.

Total deposits rose 5.1 per cent to NZ$56.7 billion with retail deposits growing 8 per cent to NZ$30 billion. Market share in deposits was steady at 21.2 per cent.

ASB paid the government a NZ$18.3 million fee for its inclusion in the Retail Deposit Guarantee Scheme and was critical of the scheme's reliance on the big four banks to pay to insure other riskier institutions such as finance companies.

"The bulk of the fees for this guarantee are paid by the four largest New Zealand registered banks, even though they are amongst the least risky of the financial institutions in our country," ASB said.

ASB said loan arrears had increased and there had been a significant downgrade of credit risk ratings across all its loan portfolios. ASB lifted its loan impairment charge by NZ$198 million to NZ$238 million.

"While this is a significant increase compared to recent years, provisions still represent only 0.40 per cent of total assets (0.18 per cent in June 2008)."

- INTEREST.CO.NZ