The Co-operative Bank lifting customer rebates almost 40% after strong annual results

The Co-operative Bank's strong financial performance stems from its growing profile with New Zealanders, CEO Bruce McLachlan suggests.

The bank has reported a $1.74 million, or 24.4%, increase in annual net profit after tax to $8.88 million. This March year result comes after the paying of $1.8 million worth of rebates to about 97,000, or 72%, of customers. The size of rebates is based on how much business a customer has with the Co-operative Bank. The minimum rebate will be $10, maximum $577, and average $29.

It's the third year the bank has paid its customer-owners rebates and the total value of them is up 39% year-on-year.

"The (near) 40% growth this year reflects the underlying strength in the business and our confidence going forward. And it's our long-term goal to increase that significantly," McLachlan told interest.co.nz.

Annual profit before rebates and tax rose 30.9% to $13.407 million.

Formerly PSIS, the Co-operative Bank received banking registration from the Reserve Bank in October 2011.

"New Zealanders are now recognising the bank, are now familiar with it. They're actually now considering us because they recognise we are actually different," McLachlan said.

"What we are seeing is an increasing number of New Zealanders who are now open to doing business with us. And what we've demonstrated is we can start converting that now to more customers, more balances, better results and a stronger bank. We've worked hard to build what we think is a really credible brand, credible bank and we've only just started."

He said the Co-operative Bank had added 12,000 gross customers during its March year, taking total customer numbers to 135,000. That's 3,000 more than the bank reported at the end of its March 2014 year.

Doing well in the South Island

The annual results show an 8.4% increase in net operating income, with net interest income rising 13.7%, and a 4.9% rise in operating expenses. Bad debts dropped 31.7%. The bank said lending grew 10.9% and deposits increased by 12.1%.

 McLachlan said the lending and deposit growth was broad based both in terms of geography and different types of customer demographics.

"The highest performing region for us in the last year has been the South Island where we've done very well," he said.

Some 23% of the Co-operative Bank's home loan book stems from Auckland, meaning it's underweight in the City of Sails, McLachlan added.

"So that represents opportunity but it also tells you from a risk perspective we haven't been too concerned about our Auckland portfolio. We're not over exposed to the recent moves and the portfolio's performing incredibly well."

McLachlan said he supported the recently announced moves by the Reserve Bank and government aimed at cooling the Auckland housing market where "clearly the capital gains were unsustainable."

"I think the combined efforts of all of the initiatives are probably going to check the market in the short-term. So I think you'll see people back off initially while they wait and see what the impact of that is," he said.

0.2% to 0.3% impact seen

In terms of the Reserve Bank's plans to establish loans to residential property investors as a new asset class, based on the information available to date, McLachlan said the Co-operative Bank estimates this will have a 0.2% to 0.3% impact on its capital adequacy.

"(But) we're underweight on property investors so the impact on some other banks might be a bit more."

The Co-operative Bank's total capital ratio stood at 16.5% as of March 31. That compares to the 8% minimum Reserve Bank requirement, plus a 2.5% buffer ratio.

Meanwhile, Fonterra's falling dairy payouts will have minimal impact on the Co-operative Bank, McLachlan said. 

"We're probably the only bank with no direct exposure. Regionally Waikato, Taranaki, Southland and Manawatu are the provinces most dependent on dairy," said McLachlan. "I think relative to others we have way, way less direct or indirect exposure to dairy."

Here's the Co-operative Bank's stakeholder briefing and here's its press release.