KEY POINTS:
ASB Bank says an 11 per cent fall in half-year profits is a good result in the context of the global financial crisis.
Hit by a surge in bad debt charges and higher salary expenses associated with the roll-out of new branches ASB, a subsidiary of the Commonwealth Bank of Australia, said its net operating profit for the six months to December was $238 million compared with $267 million a year earlier, a fall of 10.9 per cent.
"Although that is a reduction, compared to most banks globally I think it's a very solid, strong result," said new ASB chief executive Charles Pink - who took over from Hugh Burrett a month ago.
"Having said that, it's showing the impact of the environment," said Pink, a former Barclays Bank executive.
Impairment charges, the cash banks must set aside to cover losses on loans that have either gone bad or may do so in future, rose from $5 million for the December 2007 half year to $67 million for the same period last year. That takes total provisions to $157 million or 0.24 per cent of total assets, which Pink said was still low by global standards.
Nevertheless, the bank is bracing itself for further turmoil in financial markets and the global and local economies.
"We're not in any way out of the woods. I think there's a long way to go on this."
Allowing for increased bad debt charges, ASB's total operating income at $660 million was down 2.7 per cent but operating expenses rose 13.5 per cent to $336 million. Salary and other staff expenses were up $22 million to $197 million.
"We are still investing," said Pink who pointed out the bank had opened three new branches in the past 12 months, "and that's what's flowed through to our salary line."
Indicating he was mindful of the perception that banks are responding to the credit crisis by curtailing lending, Pink pointed out ASB's lending volumes were up 9 per cent on a year ago, "which I think is significant growth. We are still lending to our customers and we are being very supportive."
Pink also responded to concerns that banks are not sufficiently passing on interest rate reductions arguing that the Reserve Bank's Official Cash Rate, which was cut by 3.25 percentage points over the period, is only one factor influencing retail interest rates.
With offshore wholesale money markets - which have provided up to 40 per cent of bank funding - still largely inaccessible, New Zealand's major banks have been competing aggressively for retail deposits.
That, along with higher wholesale funding costs, had seen ASB's net interest margin fall from an already skinny 1.8 per cent to 1.5 per cent.
Pink said his bank had no plans to cut back on its support of community initiatives and planned to extend the scope of its support to the St John ambulance service.
