'Unbeatable' campaign won't stop: BNZ

The Bank of New Zealand will continue to bait its rivals and the Reserve Bank with its aggressive "Unbeatable" mortgage campaign, despite thinning profitability across the industry and slim market share gains.

The National Bank of Australia-owned BNZ yesterday reported a full-year net profit of $541 million, up 14.8 per cent on last year. But adjusted for one-off items such as $78 million in software-related writedowns and charges last year, the result was flat, despite a 7.5 per cent increase in net interest income to $961 million. The bank's other income declined 4.4 per cent to $516 million.

BNZ's interest rate margin across its entire New Zealand business, including institutional and corporate banking, eased by five basis points while the margin on retail banking declined seven basis points once accounting changes were stripped out.

That decline was driven by growth in lower-margin fixed rate mortgages and competitive pressure and an increased reliance on wholesale funding.

Nevertheless, BNZ managing director Peter Thodey said the result "was an excellent one given the highly competitive dynamics of the New Zealand banking market in the last year".

The BNZ can take much of the credit for ramping up competition with the launch of the Unbeatable campaign late last year.

Thodey said the campaign had lifted the bank's share of the mortgage market to 16.2 per cent from 15.9 per cent a year ago.

But market share has remained static in the last six months.

BNZ rivals ANZ National and Westpac have recently said the fierce mortgage competition was eroding profitability across the industry.

"They do bleat on about the fact that their margins are contracting because of us," said Thodey. "But why have we done so well in holding our margin contraction to seven basis points?

"What they still don't seem to understand is that by dealing with mortgage brokers they're giving away significant amounts of their profitability. We don't deal with mortgage brokers."

Thodey said BNZ was happy with its market share gains. "Unbeatable will not stop".

But the mortgage war has also vexed Reserve Bank Governor Allan Bollard, who said last week that it had prolonged the housing boom, which in turn had stoked inflation.

Thodey didn't believe Bollard's comments were directed particularly at the BNZ.

"If the Reserve Bank came to us and said we want you to slow your lending down on housing then we would happily sit down and talk to them."