ASB racked up record half-year profit as its net interest margin, the difference between income generated from credit products like loans and mortgages, and payments made to deposit savers and others the bank borrows from, soared.
ASB's unaudited net profit after tax for the six months to December 31, 2022 jumped $78 million, or 10%, to $840 million from $762 million in the six months to December 31, 2021, its previous record interim profit.
The increase came as ASB's net interest margin jumped 33 basis points to 2.52% in a rising interest rate environment.
Net interest income rose $273 million, or 21%, to $1.548 billion, helping total operating income rise 16% to $1.826 billion. Total operating expenses rose $87 million, or 17%, to $609 million as salaries and other staff expenses rose, as did information technology costs. ASB's cost to income ratio fell 10 basis points to 33.9%.
The bank booked $49 million worth of loan impairment losses versus recoveries of $13 million in the first-half of its previous financial year.
'Challenging' year for home loan customers
ASB grew home loans by 2% between June and December last year to $73.4 billion. Business lending rose 3% to $21 billion, and rural lending fell 1% to $10.97 billion. Interest bearing customer deposits increased 4% to $65 billion.
ASB CEO Vittoria Shortt says ASB knows 2023 will be challenging for its home loan customers, especially those experiencing big interest rate rises.
"Even though loan approvals are tested at rates significantly higher than the approved rate, we want to make sure customers are well placed to manage as these rates come up for renewal. For many, it will be the first time they experience the impacts of increased interest rates," Shortt says.
"We've already reached out to more than 4,000 of our home loan customers to help them understand the options open to them, and by the end of the year, we expect to have contacted a further 9,000 customers who could face financial challenges."
ASB's parent, Commonwealth Bank of Australia (CBA) says 0.22% of ASB's home loans had been in arrears for at least 90 days as of December 31. That's up from 0.19% a year earlier, and 0.21% at June 30.
CBA itself posted a 9% rise in interim cash profit to A$5.153 billion, with its net interest margin up 18 basis points to 2.10%. CBA's paying an A$2.10 per share, fully franked, interim dividend, an increase of 20%.
CBA's common equity tier 1 capital ratio fell 10 basis points between June and December to 11.4%, as a percentage of risk weighted exposures. And its return on equity rose 80 basis points in the six months to December, reaching 14.1%. ASB's common equity tier 1 capital ratio was 14.1% at December 31, up from 12.9% a year earlier. The bank says it had $5.245 billion of capital in excess of its Reserve Bank regulatory requirements at December 31, when total capital stood at $10.804 billion.
ASB paid dividends of $400 million in the half-year, down from $650 million in the same period of the previous year.
Meanwhile CBA also announced an A$3 billion on-market share buyback.
Chart above from CBA.
34 Comments
Banks get into serious difficulties. They do fail: Lehman Brothers, Barings, Royal Bank of Scotland, Northern Rock, BCCI, etc. However you are right the banker always wins - they never end up in prison when they deserve to be, nor even end up poor. If British they often end up with knighthoods. Wasn't the last action of Barings Board to vote themselves a generous bonus.
The primary reason that the banks were bailed out in the GFC was that the USA would collapse and lose their reserve currency status and the global influence and power they have wielded since WWII. As soon as geopolitics gets in the way of the free market and logic, there will always be unintended consequences.
Don't worry ...we all must slave more and more for the banks, through borrowing/rental costs, that reduce our discretionary income !
As long as the banks are making profits and landlords can raise rents, the world is OK ......nothing to see here, move along now.
Why even make this news - the REAL news will be when one of the big 4 Aussie banks falls over, as people can not afford their mortgage or rent payments anymore ...then the banks will have the cheek to "freeze" and then claim 84yo Mrs J. Williamson from Reefton and her $250,000 term deposit .....remember currently bank gaurantees in NZ for term deposits/savings accounts just DO NOT exist.
So when the banks lose - everyone loses !!! ....while in the meantime it's "privatise the gains, socialise the losses" ......they are just another cog in this "fake" economy.
The Rentier Economy is a Free Lunch
You’ve had, for the last – really since the 1980s, but even since World War 1 – this movement to prevent industrial economies from being low cost. But the objective of finance capitalism, contrary to what’s taught in the textbooks, is to make economies high cost, to raise the cost every year.
That actually is the explicit policy of the Federal Reserve in the United States. Turn over the central planning to the banking system to essentially inflate the price of housing, with government guaranteed mortgages, up to the point where buying a home is federally guaranteed up to absorbing 43% of the borrower’s income.
Well, you take that 43%, you take the wage withholding for social security and healthcare, you take the taxes; the domestic market shrinks and shrinks. And the finance capital strategy is exactly what it is in the United States today, in Europe. Shift all of the money away from the profits of industrial capital that are reinvested in making new means of production. To expand capital into a shrinking economy where the financial sector intrudes more and more into the economy of production and consumption and shrinks the economy
It amazes me you are still posting comments here Yvil...?
by Yvil | 13th Feb 23, 10:33am
What if the predicted flooded sweage picks up Covid and spreads it all around? I'm sure you could write this more eloquently and more terrifyingly than me. Surely that would scare the sheeple more, then we can keep the schools, businesses, airport etc closed for months and we can all stay home! Hooray, no more work!
The graphic depicting system lending growth to business is higher than that to homes for 6 months to Dec 22 doesn't change the fact that:
Banks have migrated away from lending to productive business enterprises because the risk weights can be as high as 150%. Thus around 60% of NZ bank lending is dedicated to residential property mortgages owed by one third of already wealthy households
Need some serious competition in retail banking but realistically that would be from a major global bank and can't see that happening any time soon. Should never have allowed ANZ to acquire National, Westpac to acquire Trust Bank etc. Maybe the only solution now is fully portable bank accounts with AML hurdles resolved through government facilitation e.g. RealMe.
Ya, it's up to individual borrowers to have insight that lenders, risk assessors and regulators apparently didn't, don'tchaknow.
It couldn't possibly just be an excuse for people to wag yet another finger in the face of younger Kiwis just trying to get a family home.
And they generally don't seem to like the finger they get back in response either. The world is a funny old place.
So, exploring the alternative, are we saying we want banks to do servicing test at 10%+ rates, decline everyone and/or only offer tiny loans ... wouldnt the front pages also then bash banks for being too conservative and drive borrowers to second tier lenders with higher rates and less legislation?
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.