ASB records strong growth in business and rural lending as interim profit slips back from last year's record high

ASB has reported a 2% fall in half-year profit but says it grew rural and business lending strongly in the half, by 12.7% and 9.4% respectively.

ASB's net profit after tax for the six months to December 31 fell NZ$7 million, or 2%, to NZ$365 million from its record half-year profit of NZ$372 million in the previous comparable period. Both operating income and operating expenses rose 2%. Impairment losses on loans doubled to NZ$28 million.

The bank says lending increased NZ$2.483 billion from June 30 to December 31 last year, an increase of 4.7% to NZ$55.485 billion. Although ANZ has been growing aggressively in ASB's traditionally strong market of home loans, ASB has grown strongly in rural and business lending.

"Rural and business lending both grew above market levels, recording growth of 12.7% and 9.4% respectively," CEO Barbara Chapman said.

"The performance of these two key market segments is a reflection of growing confidence among farmers and business owners as business conditions in New Zealand steadily improve."

ASB didn't disclose a specific figure for its residential mortgage growth. However, parent Commonwealth Bank of Australia (CBA) said ASB's home lending rose NZ$1.269 billion in the six months to December 31, or 3.4%, to NZ$38.679 billion. The majority of the growth was in fixed-term mortgages due to "focused product offerings and improved customer retention."

According to Reserve Bank sector credit data, agriculture sector debt rose 5.1% in the year to December, business debt rose 2.5% and residential mortgages increased 3.7%. ASB's overall lending growth of 4.7% outstripped the bank's 2.3%, or NZ$889 million, growth in deposits to NZ$39.864 billion.

Mark Heer, ASB's general manager of rural banking, told interest.co.nz last month that increasing numbers of dairy conversions had helped boost ASB's rural lending.

Cash earnings up 24% vs parent CBA's 6% rise

ASB said its half-year cash earnings rose NZ$24 million, or 7%, to NZ$348 million. CBA posted a 6% rise in half-year cash earnings to A$3.78 billion, slightly ahead of the consensus of analysts' expectations. CBA's dividend per share rose 20% to A$1.64 with 70% of cash earnings paid out compared with 61% last year.

CBA said its New Zealand insurer Sovereign delivered a 10% fall in half-year cash profit to NZ$44 million following an "unusually strong" claims result in the previous comparable period.

ASB's net interest earnings rose NZ$42 million, or 6.5% to NZ$688 million, and its total operating income increased NZ$19 million, or 2%, to NZ$896 million. Total operating expenses rose NZ$8 million, or 2%, to NZ$361 million. Chapman said the rise in expenses was largely due to inflation driven staff and property costs, plus technology costs.

She noted the 100% rise in loan impairments to NZ$28 million was coming off cyclical lows.

"Arrears across the retail lending portfolio continue to trend downwards and are currently at the lowest level seen in recent years," said Chapman.

Meanwhile, growth of funds under management in ASB's KiwiSaver scheme slowed to 31% for the 2012 calendar year from 44% in 2011.

The bank's total assets increased NZ$1.772 billion, or 2.8%, during the second-half of the 2012 calendar year to NZ$65.309 billion, and total liabilities rose NZ$1.250 billion, or 2%, to NZ$60.6 billion.

ASB's net interest margin rose 6 basis points from June to December to 2.22%. Its return on total average assets was unchanged at 1.1%, and its return on shareholder's equity fell to 18.2% from 19%. Compared with June 30, total operating expenses as a percentage of total operating income fell to 40.3% from 42.6%

See ASB's full statement here and here's CBA's full analysts presentation.

(Updated with additional detail).