ASB profit down 17% as bad loans sextuple and interest margin falls

ASB's net profit after tax in the year to June 30, 2009 fell by 17%, or NZ$90 million to NZ$425 million from the year before, the bank's latest General Disclosure Statement shows. The fall in profit came as impairment losses on loans rose from NZ$40 million to NZ$238 million and its net interest margins were squeezed by higher funding costs locally and internationally. Loan losses accelerated across both business and housing lending because of New Zealand's deepest recession since the early 1990s, while interest margins fell because of the higher cost of funding on international wholesale markets and because hot competition has pushed up term deposit rates. Net interest earnings were down 2.1%, or NZ$21 million over the year to NZ$980 million. This came as ASB's interest income rose 2.3% to NZ$4.8 billion, while interest expenses rose by 3.5% to NZ$3.8 billion. "This year, the current higher cost of wholesale funding compared to previous years, together with ASB's determination to continue to offer competitively priced deposits to local savers, has created intense downward pressure on margins," ASB said. However this loss of income was more than covered by a 46% increase in other income, which rose by NZ$186 million to NZ$532 million over the year. ASB's net interest income as a percentage of average total assets over the last two years fell to 1.57% in the year ended June 30, 2009 from 1.78% in the year ended June 30, 2008. This follows on from a trend exhibited by the major Australian banks in New Zealand, while Kiwibank has seen its ratios stay steady at around 1.9%. ASB grew its mortgage book by around NZ$192 million (0.46%) over the June quarter from March, taking its total book to NZ$41.768 billion, the second largest book in New Zealand behind ANZ National. However, this growth was less than the 1.1% growth by banks overall during the quarter, as ASB lost some market share. Big movers over the quarter were Kiwibank, which grew its mortgage book by close to 10%, and BNZ which grew by 2.4% between March and the end of June. Of ASB's impaired advances of NZ$238 million, half of these (NZ$118 million) were on corporate loans, NZ$74 million were on residential mortgages and NZ$46 million were on other retail loans. ASB's total credit exposures to the Agriculture, Forestry and Fishing industry were NZ$7.193 billion at June 30, 2009, up 8.9% from the year before.