Profit falls for BNZ as number of customers increases

By PAULA OLIVER

BNZ has suffered a fall in half-year profit after it adopted an aggressive strategy to win customers.

The fall is a turnaround from the string of healthy profits posted by the country's big five banks in the past three years.

BNZ yesterday reported an after-tax profit for the six months to March 31 of $264 million - down 6.7 per cent on the corresponding period last year.

The drop was partly driven by BNZ spending extra cash to improve technology and service, though it also experienced pressure on its net interest margin as it competed for business.

Managing director Peter Thodey said that the healthy profits in the past three years were unsustainable.

They had been driven by strong economic growth.

"That growth started slowing down late last year and it will continue to slow down," Thodey said.

"Lower economic growth will continue to be reflected in BNZ profits over the immediate future."

BNZ launched an attack on the red-hot mortgage market last year when it reduced its interest rate to a level below its competitors.

It also aggressively chased young customers and heavily promoted a series of new products.

The result has been an increase in market share of mortgages and many more young people signing up as customers.

Retail customer numbers grew 5.1 per cent in the half year.

BNZ yesterday said that its market share of home loans was now 15.6 per cent, compared with 15.2 per cent at the same time last year.

Its home loan book grew 19 per cent over the past year, compared with nationwide growth of 16.2 per cent.

It also increased its market share of term deposits, going from 18.8 per cent last year to 19.4 per cent at the end of March this year.

With the growth, though, has come a fall in profit.

That was partly through the heavy promotion of new products, spending $25 million on a new teller computer system and an upgrade of ATMs. While the bank's net interest income was slightly up for the period, that was largely because of volume growth in business and personal lending and retail deposits.

The increase in volume masked a falling interest margin that came under increasing pressure as customers moved toward fixed rate loans to lock in lower rates.

Many did so to avoid Reserve Bank moves to increase the official cash rate in January and again last month.

According to the bank's parent, National Australia Bank, BNZ recorded flat operating income as customers changed their transaction habits to avoid fees.