TSB profit rises as lower OCR improves net interest income

TSB took advantage of a sharp fall in term deposit rates in the June quarter to boost its net interest margins and its profits, but still managed to gather an extra NZ$103 million in deposits in a hotly competitive market. Its lending growth was a more modest NZ$42 million for the quarter. TSB's reliance on domestic term deposits for its funding meant it benefited more from the fall in the Official Cash Rate than its Australian-owned competitors, who ironically have been accused of using the falling OCR to boost their profit margins but have seen little to date because of their reliance on more expensive foreign wholesale funding. TSB's General Disclosure Statement for the June quarter showed its tier one capital ratio dropped slightly in the quarter to 16.2% from 16.9% at the end of March and 17.1% a year earlier. But this remains almost twice as high as the big four banks who are around the 8-9% mark. TSB's BBB+ credit rating compares to the big four's AA ratings. TSB's net profit rose 25.6% in the June quarter from a year ago to NZ$14.87 million, while mortgage lending on deposits with high LVR ratios increased, and the proportion of deposits that were term deposits decreased, in favour of call accounts. Interest income was NZ$65.62 million over the quarter, down 8.2% from the year before. However, interest expense was down 21.6% to NZ$37.42 million, meaning net interest income over the period was NZ$28.2 million, up 18.6% from the June 2008 quarter. Total loans and advances to customers were NZ$2.17 billion at June 30, up 6.6% from the same point last year, and up 2% from March 31. Residential mortgage lending made up 89.9% of total lending (the same as at June 30, 2008), with 88% of mortgage loans made at a loan to value ratio of 80% or less (compared to 90% of mortgages at June 30, 2008). The amount of mortgage loans with LVR's above 90% rose by 64% year-on-year to NZ$103.2 million. Deposits from customers rose 20% from June 2008 to NZ$3.58 billion at June 30, 2009. Retail term deposits made up 48.7% of total customer deposits, compared to 51% a year ago. This reduction in the proportion of deposits that were term deposits was coupled with a rise in the proportion that were on-call interest bearing deposits, up to 47.2% of the total from 44.6% a year ago.