KEY POINTS:
The quality of BNZ Bank's loan book took a big hit late last year, its parent National Australia Bank said yesterday.
BNZ's rival Commonwealth Bank of Australia, which owns ASB Bank, prepares to release its interim result tomorrow.
The big four Australian banks and their New Zealand subsidiaries
have avoided most of the overseas carnage which has blighted the United States and European banking sector, but the resulting economic fallout has brought an abrupt end to half a decade of double-digit profit growth in the region as borrowers find it increasingly difficult to meet repayments.
In a market update yesterday NAB, now headed by former BNZ boss Cameron Clyne, noted New Zealand's economic slowdown accelerated in the December quarter with business and consumer confidence reaching historic lows.
"The slowing economy combined with rising unemployment and falling investment is creating increased pressure on asset quality," NAB said.
A measure of lending quality, the level of bad loans to total assets, blew out by more than 50 per cent in the quarter. BNZ's ratio of loans that were 90 days or more in arrears plus gross impaired assets to gross loans and acceptances increased from 54 basis points, or just over half a percentage point, to 87 basis points over the three-month period.
NAB said the New Zealand banking market remained "highly competitive and is increasingly so with respect to deposits".
"Margin pressure from higher funding and liquidity costs has continued and this has been compounded by additional costs under the Government's Retail Deposit Guarantee Scheme.
"Growth in lending volumes has continued to slow although ongoing repricing initiatives are assisting asset margins."
If BNZ's market update is any guide, CBA-owned ASB Bank is likely to report a sharp increase in past due and impaired loans with a slowdown in profit growth when it reports December-half results with its parent tomorrow.
Last February, ASB Bank reported that its first-half net profit rose 12 per cent to $266 million.
A week ago, CBA surprised the market by saying it expected its profit would top market expectations by 20 per cent, with an interim cash profit of around A$2 billion.
Chief executive Ralph Norris, the former boss of ASB and then Air New Zealand, said the "robust" performance, which still represented a 16 per cent slide from December 2007 half-year earnings of A$2.385 billion, was driven by deposit growth and strong credit demand despite the slowdown.
But he cautioned there were tough times ahead, with the longer-term outlook "extremely difficult to predict".
"The group remains focused on credit management and cost control, improving customer service, and responding to the changing pattern of customer demand."