BNZ makes headline loss of NZ$181 mln on tax case provision (Update 2)

BNZ reported a headline loss of NZ$181 million in the year to September 2009 after it recorded a one-off provision of NZ$661 million for its structured finance tax case with the IRD. (Update 2 includes NAB comments.) BNZ said its net interest margin was 2.13% for the year to September, down by 29 basis points on the previous year. Bad and doubtful debt charges for the year were NZ$185 million, up from NZ$67 million in the year to September 2008. Here is the full statement from BNZ. Comments from BNZ's parent NAB are below:

BNZ has today reported cash earnings of $420 million for its core NZ Banking operations, representing a 12.9% drop year on year. BNZ CEO Andrew Thorburn said: "˜We are emerging from a tough year with a sound balance sheet, good asset quality and strong capital ratios. As part of NAB group we remain one of around 10 banking groups globally which are AA rated. "˜The numbers show that BNZ continued to support NZ business through the recession, with business lending volume up 8% year on year, versus market growth of 4%: with increased market share in lending across all key business segments. We also led the market in abolishing honour and dishonour fees in July this year, and in doing so shifted an estimated $25 million back to customer wallets for the year ahead. "˜We're cautiously optimistic about the medium term picture for NZ, anticipating modest GDP growth of around 2% over the next two years. As an economy we are facing into some tough challenges going forward, including the need to be more self-sufficient, which means funding more locally. We recognise the role BNZ can play in building that capacity'. The Bank's capital ratio at 10.88% remains well in excess of the Reserve Bank's minimum requirement of 8.0%. NZ Banking's net interest margin is 2.13%, down by 29 basis points on the previous year and bad and doubtful debt charges for the year are $185 million, up from $67 million. The results for total BNZ legal entity (includes NZ Banking and BNZ Corporate) show a headline loss of $181 million, predominantly due to the one-off tax case provision of $661 million. Excluding the tax provision and non-cash items, BNZ's underlying profit on a cash earnings basis is $703 million, driven by a particularly strong performance from BNZ Capital in the first half, based on increased customer flows around hedging foreign exchange exposures. 2009 has seen BNZ apply a strong focus on customer, employee and community, with investment in the following: "¢ Opening new concept stores in the retail network to provide a more convenient, more efficient service "¢ The opening of three new 5 Star Green Star Design buildings across three locations "¢ BNZ was the first New Zealand bank to abolish honour and dishonour fees "“ a move warmly welcomed by both staff and customers "¢ New initiatives in the culture space have included a 72 hour online "culture jam". It generated a huge response and enabled staff to voice their views and be a part of shaping the future culture of the bank. "¢ This focus on culture has been reflected in an increase in employee engagement scores putting the Bank ahead of the global average for financial services organisations. "¢ Staff have used 3,742 volunteer days to support local charitable organisations, an increase of 83% from 2008. "¢ BNZ staff have two days paid volunteer leave a year which they currently use individually, but as a New Zealand first, on 4 November BNZ will be "Closed for Good" and more than 3,500 staff will be available to the community in a way where they can really make a difference. "¢ Investing in a nationwide network of business centres for BNZ Partners Andrew Thorburn said, "˜As BNZ CEO I'm proud to have been part of some great "˜firsts' with our staff. Our first online "˜culture jam', the completion of three new 5 Star Green Star Design buildings, and our first "˜Closed for Good' where we harness the energy and talents of thousands of staff on one day to actively get involved in their community.'

New Zealand is experiencing a challenging period with the impact of a domestic recession and the global disruption to the credit markets, although pressures appear to have eased slightly in recent months. Cash earnings fell 12.9% to $420 million due to: the increase in the charge for bad and doubtful debts; margin reduction reflecting increased funding costs; the NZ Government's retail deposit and wholesale guarantee schemes costs and steps taken to strengthen the balance sheet and attract additional customer deposits. Margin reduction was partially offset by repricing. Business lending growth was supported by the launch of the BNZ Partners brand which utilised the Group best practice iFS model. Underlying profit was up 1.7% due to continuing flat costs, improved income flowing from customer demand for foreign exchange hedging demand and a 12.4% increase in lending volumes.