BNZ chief cautious despite bounce in bottom line

BNZ chief executive Andrew Thorburn Photo / Herald On Sunday

Bank of New Zealand chief executive Andrew Thorburn says the bank is through the worst but he expects the next year to remain tough as the economy slowly recovers.

The BNZ yesterday reported a relatively flat annual result with its cash earnings up just 1.4 per cent to $524 million in the year to September 30.

Although its net profits bounced back into the black from a $181 million loss the previous year, the boost was mainly as a result of a tax settlement which the bank paid out to the Inland Revenue last December.

BNZ had expected the tax case to cost $661 million but latest accounts show it ended up paying $494 million and writing back $167 million, boosting its net profit to $602 million.

Revenue for the bank had also been hit by a $23 million drop after it abolished honour and dishonour fees.

Thorburn said it had been a difficult economy over the past year with tough competition in the deposit market.

The bank had increased its earnings slightly through managing its expenses tightly and keeping a check on its provisions for bad debt.

Provisions had stayed flat, improving marginally from $188 million to $187 million, but Thorburn believed they had now reached a peak.

Thorburn said the majority of the provisioning related to business and corporates where BNZ had a high market share of around 25 per cent of all business lending. Lending growth had also been tough over the year.

The home loan market had increased 3 per cent with BNZ picking up slightly more than its market share but it was "still fairly subdued".

On the business lending front the market had shrunk by about 3 per cent.

Thorburn said that was a result of businesses deciding to pay back debt.

"There are businesses that have got cash but they are not making any acquisitions or investments."

The bank had grown its deposits by 9.7 per cent, increasing its market share from 17 per cent to 17.6 per cent, but competition remained intense.

Thorburn said the competition would put pressure on deposit rates to rise and would also keep pressure on bank margins.

The bank had been able to offset that through lending as home loan borrowers had switched from fixed to floating rates.

Thorburn said a further shift to floating rates would depend on how confident people were that interest rates would remain stable and low.