KEY POINTS:
The effect of credit market turmoil on the profitability of the local banking sector may push interest rates for home buyers and other borrowers higher still, ANZ National Bank chief executive Graham Hodges said yesterday.
Excluding a $90 million gain on the sale of shares in credit card company Visa, ANZ National, New Zealand's largest retail bank, yesterday reported an underlying net profit of $520 million for the six months to March, up 7 per cent on the previous corresponding period.
"We would characterise that as a solid result in the context of a slowing economy, highly competitive market and increased funding costs," said Hodges.
That credit-crunch driven increase in funding costs saw the bank's overall interest rate margin - what it earns on loans and deposits - decline 14 basis points to 2.36 per cent.
Hodges said that margin erosion "reflects the fact that we still haven't passed on all the impact of higher funding costs to the market".
While there were some signs that worst of the sub-prime related damage had been disclosed by US banks, Hodges said money markets remained cautious.
"We just don't know how long this will last. If these conditions persist, and depending on what the Reserve Bank does here, you could see a time when the cost of borrowing does go up here still."
Hodges also indicated "credit rationing" by local banks, which KPMG warned of this week, was likely if market conditions worsened, making it more difficult for them to access offshore money.
"We're not seeing that now, but if those conditions persist for quite a long time then it would be more difficult for us to access funds and therefore more difficult to borrow."
Hodges said ANZ National had already "turned the dial on our credit criteria a little bit".
"We don't think it's either in the bank's or the borrowers' interest for them to get into borrowings they can't afford."
Despite that tightening of credit criteria, ANZ National's loan book still grew 14 per cent in the March year, and 6 per cent over the half to $85.53 billion.
Excluding institutional banking, which enjoyed a strong performance due to market volatility, the group's core New Zealand businesses posted a net profit of $417 million, up 6 per cent on a year earlier.
Drilling down to the numbers for individual divisions the National Bank retail business' net profit at $129 million was down 2 per cent on a year ago.
ANZ retail made $95 million, an increase of 12 per cent on last year's March half, but a 3 per cent decline on the September 2007 half.
The bank's provision for credit impairment or loans that have either gone bad or are expected to, increased by $63 million or 210 per cent.
