Tax bill and bad debt charges drain BNZ coffers

BNZ Bank has reported a $183 million loss for the nine months to June after provisioning for its $661 million "structured finance" tax bill and a 184 per cent jump in bad debt charges.

The bank released its third quarter general disclosure statement yesterday which showed an 8 per cent decrease in underlying earnings to $823 million.

However, the bottom line - a profit of $597 million a year ago - was hammered by the $661 million provision against Inland Revenue's $416 million amended assessment on the bank's use of the controversial structured finance transactions several years ago, and a further $245 million in interest on that sum.

The bank lost the first round of a court battle with the IRD two months ago when the High Court found it had used the mechanism to minimise tax. The bank has said it will appeal.

However, BNZ's loss over the nine-month period is only on paper. While it has raised the provision against the tax bill, it has not paid the money to IRD and if it wins its appeal will write the cash back to its profit and loss in the future.

The bank's net profit was also dragged lower as bad debt charges rose from $50 million a year earlier to $142 million.

Chief financial officer Ken Christie said, large as they were, the bad debt charges were not as ugly as those reported by some peers. Christie said the bank had been able to access offshore term funding, raising $750 million at 175 basis points above the relevant swap rate.

"We're seeing the capital markets open up a little bit more to New Zealand borrowers."