Decline follows profit for ASB

By PAULA OLIVER

The housing market has taken a dramatic turn for the country's fastest growing mortgage lender, ASB.

In disclosing a record annual profit yesterday, ASB's managing director, Hugh Burrett, admitted the main reason for that result - a booming housing market - had dropped off sharply.

Last month ASB's home lending volumes fell to just half of what they were a year before.

"We do normally get some drop-off in that period but it's not normally as marked as that. July was the time it started to bite," Burrett said. "It's the school holidays, it's the middle of winter and there were increases in interest rates."

Since then, volumes had recovered to 70 to 80 per cent of last year's figures.

"There has been a slowdown, no doubt about it," said Burrett.

That decline was being experienced most in Auckland.

Burrett said he had picked up anecdotally that the fall was coming mainly in the area of investment rental properties. The normal buying and selling of homes related to family movements was still going on.

"I'm still positive because I think we have still got a good solid market there. But you won't have the highs like we've had and I don't think we want that," Burrett said

The highs did, however, help ASB return a bumper annual profit of $317 million - up 14 per cent on the previous year's profit.

Lending growth was particularly strong. Net housing loans increased during the year by $4.5 billion, net business lending by $1 billion and net rural lending by more than $550 million.

The interest margin - the difference between the interest banks pay for money and what they charge - fell to 2.27 per cent, a record low for the ASB, suggesting it was competing hard on price.

Burrett said the fall in margin was due to the extremely competitive market. ASB was prepared to see the margin go lower.

The bank's operating income was up 10 per cent on last year to $937 million, with $688 million of that from net interest earnings. Income from transaction fees and services totalled $84 million.

Operating expenses grew 10 per cent to $446 million as the bank took on 300 new staff, but it nevertheless slightly reduced its cost-to-income ratio to 47.65 per cent.

Burrett predicted the coming year would see a slowdown but nothing too dramatic.

"When I say a slowdown it's really only getting back to the activity that we had two or three years ago. So it's really still a reasonable market."

If the ASB continues its growth it will soon threaten the National Bank's status as the country's biggest home lender.

But it has some way to go to match the annual profits of Westpac, the National Bank and BNZ, which have been nearer $500 million in recent years.