ASB's annual net profit has weighed in at another record high, nearing $1.5 billion, meaning the bank has posted record annual profit in 12 of the last 13 years. The only exception was 2020.
The bank's June year net profit after tax rose $150 million, or 11%, to $1.471 billion from its previous record high of $1.321 billion in the June 2021 year.
ASB's total operating income increased $279 million, or 9%, to $3.251 billion, with net interest income up $212 million, or 9%, to $2.599 billion.
Operating expenses rose $34 million, or 3%, to $1.175 billion, with the bank adding 157 full-time equivalent staff, giving a total of 5,879. The increase was driven by growth to support technology investment.
ASB's annual net interest margin was unchanged at 2.22%, with its cost to income ratio down 190 basis points to 37.1%.
Impairment losses on loans came in at $41 million versus a write-back of $5 million last year. This increase was attributed to higher collective provisions reflecting emerging risks such as inflationary pressures and rising interest rates.
'We're not seeing any areas of concern'
Despite significant rises in mortgage interest rates over the past year, and the highest consumer price index inflation in 32 years of 7.3%, ASB CEO Vittoria Shortt told interest.co.nz the bank isn't seeing any material rise in loan arrears for business or personal customers. Just 0.19% of the bank's lending was overdue by at least 90 days at June 30, up just one basis point year-on-year from 0.18%.
With the Official Cash Rate up 225 basis points since October, Shortt says about a third of ASB's home loan customers are on new interest rates that are about 1% (100 basis points) higher.
"And what we're seeing there is that they're all okay. We've been calling our customers to check in with them, we've also been looking at a lot of our data and metrics, and we're not seeing any areas of concern. So then the question is why is that? And we put that down to low LVRs [loan-to-value ratios], and we've also had a servicing test rate of 6.45%, which is now 7.85%," says Shortt.
"So that has given customers a real buffer for the increase in interest rates, but also for the increasing household inflationary impact. That's how affordable lending principles are supposed to work and we see them working."
Nonetheless Shortt says ASB staff are watching closely for signs of borrower stress.
"We keep looking. We're highly focused on trying to understand both first hand by talking to our customers, but also looking at different analysis and stress testing of our own [lending] book to see where we might find it," Shortt says.
Meanwhile, ASB says loans increased 5% to $105 billion, with home lending up 6%, versus 12% in the June 2021 year, to $73.624 billion. Total deposits increased 8% to $85 billion.
Figures released by ASB's parent, Commonwealth Bank of Australia (CBA), show ASB's home loan market share unchanged year-on-year at 21.6%, its deposit market share up to 18.3% from 18.2%, and its business lending market share down to 16.9% from 17.3%.
ASB paid $975 million in June year dividends versus none in its 2021 financial year when Reserve Bank restrictions on dividends were in place due to the Covid-19 pandemic.
The bank's common equity tier 1 capital ratio, as a percentage of risk weighted exposures, fell 40 basis points year-on-year to 12.3%.
'We are here to help'
In ASB's statement Shortt says in an environment where interest rates, inflation and cost of living are top of mind, ASB "continued to identify ways to help customers navigate uncertain times."
"We know the rising cost of living is keeping New Zealanders awake at night, but there is plenty we can do together to help take some pressure off. The first and most important step is to talk to us," Shortt says.
"Our purpose of accelerating the financial wellbeing of all New Zealanders has never been more relevant. We are here to help."
Shortt says ASB removed, rebated and reduced almost $50 million of fees over the June year.
She says business customers will "benefit from the deployment of a new cloud-based lending platform" that will simplify the experience for staff and customers.
CBA posted an 11% rise in annual cash net profit after tax to A$9.595 billon. CBA's net interest margin fell 18 basis points to 1.90%, and its common equity tier 1 capital ratio dropped 160 basis points to 11.5%.
CBA's paying a final dividend of A$2.10 per share, bringing its annual dividend to A$3.85 per share, fully franked, which is a 10% increase and equivalent to 68% of annual cash earnings.
According to CBA's annual report, Shortt's remuneration rose to A$3.65 million from A$2.87 million the previous year.
ASB's annual cash net profit after tax, its preferred profit measure, rose $122 million, or 9%, to $1.418 billion. (Note, interest.co.nz focuses on what the major banks describe as their statutory net profit after tax as opposed to the banks' favoured measure of cash net profit after tax. The reasons for this are detailed here and here).
84 Comments
Silence from the business community.
But it's a "kick in the guts" to businesses when minimum wage goes up at a cost of $200 - $300m to the economy.
It said that a rate of $21 an hour would affect about 230,300 people– including those on the minimum wage and those who are earning above the minimum but below the new minimum. The increase cost businesses $278 million.
But an increase to $21.25 would affect 300,700 people and cost $389m.
https://www.stuff.co.nz/business/300515349/kick-in-the-guts-for-busines…
The economy doesnt "have to find 300m" to raise minimum wages, that money doesn't just evaporate. It gets put back into the economy by people on minimum wages buying more essentials, more food, clothes and educational aides for their children. As opposed to paying it to business owners, where it might go towards an investment property or overseas travel.
Precisely! And we do that by removing more money we need from NZers wallets via too higher mortgage rates, not giving them money back via too low interest rates on savings/TDs and taking advantage of a Reserve Banks stupid monetary policy which indebts all NZers.
You couldn't make this stuff up if you tried, total double speak.
Credit creation is the easiest game in town. But not everyone is allowed to play the game and share in the spoils (I'm talking about the privilege of being able to create credit out of thin air). And for those of you who say that "banks don't create credit from thin air", you're partly right. But banks are not intermedaries. They buy debt obligations for which they create fictitious deposits (Werner).
So not stealing from ASB's thunder in any way, I wonder how and when this all ends. Perhaps it doesn't. Commercial banking in a NZ context might be up there with the greatest businesses ever created.
Very easy to keep most of this money in NZ...MOVE to a Kiwi owned bank...about $6 billion more in the economy if we all made that simple step.You can't blame the ozzies for milking us here if you let them...if you aren't part of the solution,you are part of the problem.
Robertson could change that with a single decision but why bother routing millions spent in bank fees back into the government coffers, especially given the huge government debt load and current account deficits.
There couldn't be a better summation of the myopic and she'll be right attitude of this country!
What a story of rancid mediocrity. It's all too hard..... we don't have the scale...... Well, clearly it's fricken profitable for WBC so how about employing someone at Kiwibank with the vision and risk appetite and tell them to get on with it. Sometimes the lack of vision here does my head in, but I guess it's all too cosy and easy so why take a risk with your career when being mediocre is more than enough to keep you progressing.
100%
From the KB website:
"Kiwibank was the brainchild of politician Jim Anderton, who wanted a locally-owned, locally-run bank with profits staying in the country rather than heading offshore. This is our history. We were born in 2002 and have grown up fast."
Just not for the government. Surely if it's a scale thing that could have been solved with some determination and commitment.
I just hope the banks get the same % chunk of tax on profits from the NZ IRD, as the average NZ salaried employee does for tax on salaries ? as it is those people, where most of their profits are coming from ......but the kick in the guts for NZ is how much of this profit goes back to Aussie ?
So would any care to share the % of that $1.5 billion profit finds it way back to Aussie (excluding shareholder dividends) .......then the 25% the Americans have a claim to with their ownership ?
I am probably the only one here ready to state that it is actually good that banks are posting record profits. That will give them a solid starting point once the NZ housing Ponzi starts imploding early next year, and with this implosion an inevitable increase in bad debt starts appearing on their books.
The irony is, you wouldn't even need to go that far.
Step 1: NZ registered banks only allowed to borrow funds from the RB to supply residential mortgage lending for owner-occupiers
Step 2: NZ registered banks only allowed to lend @ 50 basis points above the OCR to said owner-occupiers to cover admin / peppercorn profit
Step 4: Banks can get on with lending to genuinely risky enterprises (as they should). No bailouts ever required as bank bears actuary accountability and risk profile (as they should).
Make them work for their money. Everyone else has to.
I quite like the banking system as proposed by the economist Richard Werner. Where he proposes amongst other things for every country to have a series of small regionalised community owned banks to support their individual local productive economy’s. Their localised knowledge being able to respond to the needs of small and medium enterprises when a great deal of our wealth is generated. Specifically targeted at the productive economy only.
I quite like the banking system as proposed by the economist Richard Werner. Where he proposes amongst other things for every country to have a series of small regionalised community owned banks to support their individual local productive economy’s.
These banks exist in Germany and have invested in such ventures as low-cost housing in Eastern Europe. They also exist in Japan, but not sure if they are "community owned." Of course ignorant people will probaby scoff at regional Japanese banks but these banks are sitting on vast reservoirs of cash savings (Japanese farmers live frugally and are voracious savers).
The 'Flash Harry' Kiwi and Aussie approach to banking is all about the bubble.
Banks are both a pillar of and product of bubble economics Jfoe. But I can't see any chinks in the armour. And I don't know anyone else smarter than me who can see any weaknesses. And as you will probably allude to, everything balances so no wuckin furries.
A little bit devil's advocate, but perhaps our economic models and monetary paradigms are simply far superior to the rest of the world.
It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning. Henry Ford
So there's a big, big grain of salt with this one and you're probably better to couch it in the insanely anti-semetic terms Ford meant it in when he said it. In fact, I strongly recommend Ford: The Men and the Machines by Robert Lacey if you really want to get your teeth into anything Henry Ford has ever said that is worth quoting. It's a stunningly good read. I'd almost go so far to say it should be required reading for any aspiring Commerce or banking grad.
Mission Control to Jfoe....banking with foreign owned banks is voluntary....you don't need a letter from Robbo to start an account with Kiwibank, TSB, Heartland or Cooperative banks. And you can actually tap into the excessive profits of the Aussie banks by simply buying some of their shares. ANZ & Westpac are listed locally but anyone can buy into them on the aussie stock exchange.
Of course we could just give the Aussies the "finger"....mind you they might want NZ to repay monies owed. Unfortunately our neat little country wants to live the highlife paid for with borrowings rather than trade surpluses. Pity about that. The prewar Labour government tried that with the then English owned banks but the asked us to pay back our Maori War loan. Oops!
Dumb comment to be honest. It's not about countries, it is about losers and winners. When banks profit, they transfer money from customers to wealthy shareholders. Who are bank shareholders? Pension funds, investment funds etc - spread across multiple countries regardless of the bank's home nation.
Exactly, and there is no reason NZers can't be major shareholders in the banks they use....in fact probably are significant shareholders via kiwisaver and other managed funds.
My point is, don't moan about excessive profits disappearing over the horizon when there are readily available mechanisms to keep good banks and their profits in the country.Although in the end, we will always need foreign money (with their financial institutions) for development, but doing so to just fund consumption for lifestyle is just plain dumb.
"My point is, don't moan about excessive profits disappearing over the horizon when there are readily available mechanisms to keep good banks and their profits in the country."
You know it's not as simple as that.
The mechanisms might be available, but it doesn't account for how such assets are snapped up, where they are traded and by whom.
Always amazes me with NZ (Australian) banks .....they make good profits from the citizens of this country, but they won't insure term deposits ??? ......at least in Aussie you have a guarantee up to $250k on your TD
They could at least use some of that profit to do something about this .....perhaps a Ms Vittoria Shortt would like to answer this question ....I truly doubt I would get an answer.
Typical ....NZ been rorted by Aussie banks since the 1800's
I just dug out ASB's full financial statements for year to June 2021. Annual Report 30 June 2021 (asb.co.nz)
Net profit after tax 1.3b. Total Assets 113b. So return on assets 1.15%.
Big bank profits are a reflection of consolidation in the banking sector (a few big players), not massive margins.
Exactly this.
It's actually ~7-8% capital leverage for the main banks in NZ I believe when you account for the proportion of Tier 1 security issued that is issued as bank stock vs. the proportion issued as capital notes in the paper market (i.e. the vast majority is paper that guarantees the debt, not shareholder equity).
BASEL 2 in fact only requires that banks hold 4% in Tier 1 assets (stock and notes) in terms of minimum capital requirements.
Coupled with the fact that it is essentially a risk free carry (aka "too big to fail"), banks and their shareholders are making.....bank!
How do you think they produce that record profit?
The main way is to increase the spread between the OCR and lending rates.... using inflation and OCR rises as the excuse, the interest rates have risen disproportionately to the OCR increases, so the spread is widening
'Were here to help' is code for we're pricing in OCR increases into our forward rates that have not materialised... so we made record profits instead
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