ASB's half-year net profit rose 14% as lending growth and retail deposit margin improvement drove higher operating income, and as reduced loan impairments partly offset rising expenses, parent Commonwealth Bank of Australia (CBA) says.
ASB's statutory net profit after tax rose 14% to NZ$416 million in the six months to December 31, 2013. That's a record high topping the NZ$372 million posted in the six months to December 31, 2011.
CBA said ASB's results were driven by 8% growth in operating income as advances to customers rose $1.6 billion, or 2.3%, during the half-year to $59.3 billion, as retail deposit margins improved, and as loan impairments fell $7 million, or 25%, to $21 million. ASB's home loan portfolio grew $671 million, or 2%, to NZ$40.98 billion during the six months to December, according to CBA figures.
Total deposits rose $2.4 billion, or 6%, to $43.7 billion in the six months from June 30 to December 31 2013.
'New Zealand's in a very good position'
Chapman told interest.co.nz ASB's half-year performance was "a very solid across the board growth story."
"It has got a particular emphasis on innovation and productivity. Overall if you think about the momentum behind that growth story it is across the board. I have been particularly pleased with our momentum in Auckland, where we have outgrown the pace of the market in retail, business and commercial," Chapman said.
"I've been really impressed with our momentum in commercial and rural right across New Zealand. That momentum is continuing into the balance of this year. So New Zealand's in a very good position, I think, and that's reflecting in the confidence of our customers and their wanting to invest further, particularly in their businesses. So I think the story's a good one. We're growing our business and rural books faster than market and we're growing in Auckland across the board at above market. I do see that continuing," she added.
Chapman said improving economic conditions, the low interest rate environment and a robust housing market especially in Auckland and Christchurch, were having a favourable impact on loan impairments.
ASB's total operating income increased $74 million, or 8%, to $951 million, and net interest income was up $71 million, or 11%, to $743 million.
Operating expenses rose $26 million, or 7% to $386 million driven by salary increases and increased frontline staff. Occupancy costs were also higher due to an increase in rental, depreciation and amortisation expenses following the move to ASB's new Auckland headquarters.
Cash profit up 12%; Net interest margin up 10 basis points from June
ASB's cash net profit after tax for the six months to December 31, 2013 rose NZ$41 million, or 12%, to NZ$393 million.
Cash net profit is the bank's preferred measure of financial performance, with ASB saying it presents its underlying operating results and excludes items that introduce volatility and/or one-off distortions, and are considered not representative of ASB’s ongoing financial performance. These volatile or distorting items include hedging and International Financial Reporting Standards volatility, plus the notional cost of capital charged by CBA.
However, the way cash profit is reported has come under fire from some banking analysts.
| ASB |
Half-year to Dec 13 |
12 months to June 13 |
Half-year to Dec 12 |
| Return on Ordinary Shareholder's Equity | 17.5% | 17% | 18.2% |
| Return on Total Average Assets | 1.2% | 1.1% | 1.1% |
| Net Interest Margin | 2.35% | 2.25% | 2.22% |
| Total Operating Expenses as a Percentage of Total Operating Income | 39.3% | 40.9% | 40.1% |
The increased net interest margin was attributed to improvement in ASB's retail deposit portfolio, partly offset by a decline in home loan margins as a result of price competition and the increasing preference among customers for lower margin fixed rate loans.
Insurer Sovereign, ASB's sister company, posted a $4 million, or 9%, drop in half-year profit to $40 million. CBA said deterioration claims experience more than offset solid inforce growth at Sovereign.
CBA, meanwhile, posted a 14% rise in half-year cash profit to A$4.268 billion, which was inline with analysts' expectations. CBA's cost to income ratio fell 90 basis points to 42.9%, return on equity rose 80 basis points to 18.7%, but net interest margins fell 3 basis points to 2.14% which was blamed on funding and liquidity pressure. CBA will pay a fully franked interim dividend of A$1.83 per share, a rise of 12% and equivalent to 70% of cash profit.
Here's ASB's press release here and here's CBA's full press release here.
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