KEY POINTS:
Bank of New Zealand is backing away from its aggressive mortgage market share grab and playing things safer as it scans the horizon for what it sees as an inevitable turning point in the credit cycle.
The bank, which over the past three years has sought to expand its share of the home loan market by undercutting its major rivals, grew its mortgage book by 12.9 per cent in the year to March, lagging behind overall market growth of 14.2 per cent.
Chief executive Cameron Clyne acknowledged the bank's mortgage lending was growing more slowly than the market, but said the bank was "not out to win business at any cost".
"All we're doing is trying to manage ourselves for an inevitable turn in the credit cycle."
Clyne said banks were at present in "a really good part of the credit cycle with good asset quality", but that wouldn't last forever.
"We don't know when this one's going to turn ... the longer the cycle goes on the closer we get."
Clyne said BNZ had been "deliberately below market in some sectors" and "quite prudent" in its lending over the half. While it had some high loan to value ratio lending of the type Reserve Bank Governor Alan Bollard expressed concerns about, it was "nothing we would consider inappropriate".
The bank said the economic outlook remained benign but there were a number of variables that were difficult to read including the impact of a persistently high dollar on jobs.
"The thing we watch most closely is unemployment."
The National Australia Bank-owned BNZ reported a $330 million March-half profit, a result 22 per cent up on the same period last year. However, stripping out adjustments made under International Financial Reporting Standards underlying net profit was up 5.1 per cent to $288 million.
Across the bank's retail division, average lending was up 12.5 per cent on a year ago with business loans up 14 per cent. Retail deposits were up 9 per cent.
However, the bank's net interest margin fell 13 basis points to 2.51 per cent, due to intense competition in the housing and credit card markets.
NAB chief financial officer Michael Ulmer attributed at least some of the banks' lift in performance over the half to "a consistent strategy of getting the basics right and focusing on customer service and needs".
Roy Morgan NZ finance sector director Leslie Morton said while BNZ's customer satisfaction levels had steadily improved over the past 12 months, the bank was still sitting "around mid market" among the big banks, below ASB Bank and National Bank but ahead of Westpac.
