ANZ National net profit down 14% as bad debt costs triple and margins contract (Update 2)

New Zealand's largest bank, ANZ National, has reported a 14% fall in underlying profit for the 9 months to June 30, citing a tripling of bad debt charges and a contraction in net interest margins. (Updates with comments from interview with CEO Jenny Fagg) ANZ National's result was the poorest in the ANZ Banking Group and a reflection of the New Zealand economy being weaker than those in Australia and Asia where ANZ also operates. Hot competition for term deposits in New Zealand and higher foreign funding costs squeezed ANZ National's margins, contrary to claims by politicians that New Zealand's big four banks are profiteering. ANZ National also said it had lost out "tens of millions of dollars" on break fees paid by customers who broke their fixed mortgages. It has also increased its provision for compensation paid to ANZ investors in ING's Diversified Income and Regular Income funds. "This result reflects the tough recessionary times in which we are operating," ANZ National CEO Jenny Fagg said. "Initially it was the household sector, and now we're seeing a deterioration in all sectors," Fagg told interest.co.nz in an interview, adding that credit quality in the rural sector had also weakened recently. "We're seeing it remaining tough for at least another 12 months," she said. ANZ National's underlying net profit after tax fell 14% to NZ$640 million in the 9 months to June 30 from NZ$745 million in the same period a year ago. Its provision for bad loans more than tripled to NZ$532 million. Its headline net profit after tax fell 43% to NZ$478 million after accounting for various abnormal items, including the ING compensation. ANZ said its result for the second half overall in New Zealand would be be driven by large increases in bad debt provisions coupled with lower net interest margins. The ANZ group pointed out that second half bad debt provisions were driven entirely by its New Zealand division. "Over 40% of the total year to date New Zealand provisions are Commercial and Institutional related, of which one single name trade finance exposure accounts for 8%, with Retail 44% and Rural 8%," ANZ said. Fagg would not disclose the trade finance exposure involved. The total cost for ANZ's share of the ING NZ settlement was now expected to be NZ$147 million, up from an initial estimate of NZ$116.9 million. "The declining net interest margin is the other major factor on our business performance, reflecting higher wholesale funding costs, competition for deposits and adverse pre-payments driven by interest rate falls," Fagg said. "The underlying net interest margin for our core Retail, Commercial and Rural businesses have decreased by 26 basis points since the same period in 2008, a continuation of the downward trend over the last three quarters," she said. ANZ National's headline net interest margin fell to 1.97% from 2.05% a year ago, while the underlying NZ businesses net interest margin fell 26 basis points to 2.19%. ANZ National's GDS below showed it had NZ$375 million of retail mortgages overdue by 90 days or more at June 30, which is more than double the NZ$169 million at the same period a year ago. It also disclosed it had borrowed NZ$1.8 billion from the Reserve Bank in exchange for securitised mortgage securities worth NZ$2.25 billion. It also showed ANZ National had borrowed NZ$6.82 billion from its parent in Australia, up from NZ$672 million a year ago. It also showed ANZ National's maximum liability as at June 30 in the current tax cases before the courts was NZ$409 million, including interest owed. Fagg said ANZ parent capital support for its New Zealand arm had reached as much as NZ$10 billion at times over the last year. She also said ANZ National was being slightly less restrictive with its housing loan credit policies in recent months, in line with some other banks. "We probably are a little bit less restrictive tonally than we were," she said, adding however there had not been many changes in formal credit policies. Here is the full press release from ANZ National below. ANZN Media Release - GDS 30 June 09 310809 Here is the full General Disclosure Statement from ANZ National below. ANZNationalBranchGDSJune09 name="doc_621262678077540">