BNZ March half-year net profit up 32% to NZ$393 mln as bad debts fall

BNZ has posted a 32% rise in half-year net profit as income rose and bad debts fell.

BNZ says its net profit after tax for the six months to March 31 rose $95 million to $393 million from $298 million in the same period of the previous financial year. In contrast BNZ reported a 15% drop in net profit in the March half last year as operating expenses rose, operating income fell and impairments on loans increased.

However, this time around BNZ's net interest income rose 3%, and total operating income jumped 13%. Operating expenses were up 3%, which was attributed to BNZ's core banking upgrade, its $400 million NextGen project with Oracle, increased depreciation costs and costs stemming from damage to BNZ’s Harbour Quays building in last year’s Wellington earthquake.

Impairments losses on loans were down $35 million, or 48%, to $38 million. BNZ said this improvement was driven in part by the low interest rate environment and improved economic conditions.

Last year's half-year result also suffered at the hands of a $98 million hit to "gains less losses on financial instruments" including offshore wholesale funding such as covered bonds, whereas this year's half-year results show just an $8 million hit from this.

BNZ's 2014 half-year cash earnings, meanwhile, rose $13 million, or 3%, to $400 million.

BNZ's net interest margin fell six basis points year-on-year to 2.34% in the March half, but was up one basis point from the 2.33% reported in the last September year results. The movement in net interest margin was attributed to
customers’ preference for lower margin fixed-term lending in a rising interest rate environment, with this partially offset by lower funding costs.

BNZ's cost to income ratio was unchanged from September at 40.2%, but down 10 basis points from March last year.

The KiwiSaver scheme BNZ launched in February last year now has "just over" $250 million of funds under management.

Business, agriculture loans push lending higher, deposits grow faster

BNZ's gross loans and acceptances rose $1.1 billion, or 2%, in the March half to $62.5 billion. Customer deposits were up $1.8 billion, or 5%, to $41.7 billion. Total assets were up $1.6 billion in the March half to $76.9 billion, and total liabilities increased $1.5 billion to $71.1 billion.

“Over the past three years, BNZ has been pursuing a strategy of growing customer deposits and reducing reliance on wholesale funding, particularly short-term wholesale borrowings. The success of this strategy has resulted in a funding mix that supports sustainable balance sheet growth," BNZ's outgoing CEO Andrew Thorburn said. "BNZ’s core funding ratio was above 85% at 31 March 2014, comfortably exceeding the Reserve Bank minimum requirement of 75%."

Thorburn said BNZ's lending growth was driven by its business lending portfolio, with "steady" growth in institutional banking and agribusiness. Housing lending growth was hit by the Reserve Bank's restrictions on high loan-to-value ratio (LVR) lending, and "intense"competition.

"However housing volume has grown by $400 million over the half in targeted segments," said Thorburn.

“We’re focused on quality over quantity with our mortgage book, on developing products and services that help customers develop a sustainable financial position while ensuring we continue to support New Zealand businesses to grow," Thorburn said.

“Our relentless investment in delivering solutions relevant for our customers is starting to yield results. We are seeing a notable increase in mortgage pay downs due to products like TotalMoney and HomeAdvantage, designed to support our customers to reduce their debt and increase their wealth in manageable ways."

"In the half year to March, there were 43.4 million interactions through BNZ’s various digital channels," added Thorburn, who will be succeeded as CEO by Anthony Healy, currently head of BNZ's business banking, on May 12. Thorburn is taking over as CEO of NAB from Cameron Clyne.

Home loan marketshare down, farm loan share up

Disclosure from parent National Australia Bank (NAB) shows BNZ's housing lending market share down 20 basis points during the March half to 15.8%, cards market share down 30 basis points to 25.5%, agribusiness marketshare up 10 basis points to 22.2%, business lending marketshare unchanged at 26.8%, and retail deposit share down 40 basis points to 19%.

The percentage of BNZ's loans at least 90 days overdue plus gross impaired assets was put at 1.04% at March 31, versus 1.09% at September 30 last year, and 1.13% at March 31 last year.

The NAB group, meanwhile, posted a 9% rise in interim cash earnings to A$3.15 billion, and increased its interim dividend A6 cents per share to A99c.

Here's BNZ's press release, NAB's full results release, its press release and analysts' presentation.