KEY POINTS:
A surge in the amount of cash ANZ National Bank must set aside to cover bad loans has put the brakes on first-half profit growth at New Zealand's biggest bank.
Excluding its institutional division and one-offs, the bank achieved a net profit of $398 million during the six months to March, an 8 per cent increase on the same period a year ago.
At its full-year result last year, the bank reported net profit growth of 20 per cent, a number boosted by abnormally low credit impairment expense - the money put aside for the possibility that some loans will not be repaid in full.
Chief executive Graham Hodges said the sharp decline in growth during the March half was down to a substantial increase in such costs.
Last year the bank had enjoyed a comparatively high level of recoveries of past provisions for bad loans.
Hodges said non-performing loans had fallen from $91 million to $62 million - less than a tenth of 1 per cent of the bank's loan book.
Overall, Hodges said the bank's result was a strong one "in a highly competitive market".
The "headline" result, including institutional banking and one-offs such as the sale of the bank's vehicle leasing business, was up 24 per cent to $570 million, he said.
"Market share has been successfully defended in all sectors and we have further invested in the business."
The National Bank remained the biggest earner among the New Zealand businesses, with net profit rising 11 per cent to $138 million on an 8 per cent increase in revenue.
At $93 million, ANZ Retail's net profit was up 7 per cent, as was its revenue.
The bank's rural banking business put in a strong performance with net profit up 12 per cent on a year ago to $48 million while net profit at finance company division UDC was up 8 per cent to $13 million. Across the New Zealand businesses, net interest income rose 9 per cent compared with the 2006 first half, with lending volumes rising 13 per cent and customer deposits up 9 per cent.
However the growth in lending volumes was offset somewhat by a 10 basis point margin contraction, mainly driven by competitive pressure.
Hodges said customers in the deposit space had been switching from high margin transactional type accounts to low margin on-call savings products as well as opting for lower margin fixed-term mortgages in the home loan market.
Margins in the banking business had been consistently contracting year on year, "and we expect that will continue to happen over the next 12 months".
Nevertheless the bank had lifted margins on its fixed-term mortgage products over the last couple of months after they fell to what was probably their lowest levels in 18 months early this year on price competition.
Hodges said the bank expected to maintain annual bottom line growth at high single to low double digits over this year despite anticipating more difficult conditions.
"It's going to be a potentially more challenging market for the next 18 months if we look at the likely slowdown in some of the core areas where we have seen growth."
Those included consumer credit and home loans.
