Clients drive BNZ's mortgages

By GARETH VAUGHAN

BNZ will "happily" offer fixed home loans on wafer thin margins because it wants to win new customers and knows its competitors' margins are even thinner, the chief executive says.

Peter Thodey's pledge comes after fall in net profit from $548 million to to $471 million for the year to September.

He said yesterday although BNZ's margins from its "unbeatable" two-year fixed home loan campaign were tight, they were better than major rivals, such as ANZ National Bank and Westpac, who paid mortgage brokers' commissions. BNZ is the only major bank that does not use brokers.

"The BNZ is exploiting its competitive market position," Thodey said. "We can happily lend at this level".

BNZ has pledged to beat any two-year fixed home loan offered by other major banks as it chases customer growth. It offers two-year fixed home loans at 7.15 per cent interest, which has been as low as 0.50 per cent above banks' marginal cost of funds.

BNZ said it won $582 million, or 20 per cent, of new home loan lending business in the September quarter. BNZ's share of the home loan market has risen almost 1 per cent to 15.9 per cent over the past year. Mortgage lending comprises 40 per cent to 45 per cent of its total lending.

The National Australia Bank-owned BNZ posted flat annual profit and Thodey said the coming year was likely to see a similar performance as BNZ continued investing for growth. Although there was a drop in net profit, when $78 million worth of software related writedowns and charges are stripped out, BNZ's profit rose by $1 million.

Thodey said 80 per cent of the $78 million stemmed from writing down the value of software assets that were part of a NAB group project.

BNZ's $60 million to $70 million investment programme also contributed to the flat profit.

Thodey said BNZ was in a growth phase, had improved its position in customer satisfaction surveys, wanted more customers across the board and would again invest at a "good level" over the coming year.

Net interest from BNZ's retail banking rose by over 8 per cent, Thodey added, although BNZ's corporate banking performance declined with customers lost to Australia.

Thodey said BNZ would defend a court case brought by the Commerce Commission against it over alleged hidden credit card fees. He said BNZ had adapted to meet commission demands and been fully compliant for two years.

But the commission "may go back further than that".


Another dispute, this time with the Inland Revenue Department over tax, Thodey "fully expects" to end up in court. IRD wants $57 million in back tax and has also raised the possibility of seeking a further $212 million plus interest and penalties.


BNZ's net interest income rose to $894 million from $868 million.

Other operating income fell to $540 million from $547 million which the BNZ attributed to it holding fees steady. BNZ's cost to income ratio, a key measure of bank's profitability, rose 1.8 per cent to 47.7 per cent.