BNZ building margins to offset 60% rise in overdue interest payments

National Australia Bank has disclosed its Bank of New Zealand unit experienced a 61% deterioration in its overdue interest payments in the December quarter, but that the bank has been building its profit margins on lending to help offset the higher charges for bad loans. BNZ"s ratio of loans that were 90 days overdue or impaired as a percentage of gross loans had increased to 87 basis points at the end of the December quarter from 54 basis points at the end of the September, NAB said in its quarterly profit update statement. NAB said the New Zealand economy remained in recession and the slowdown had accelerated in the December quarter with consumer and business confidence at historic lows. The New Zealand banking market remained highly competitive, particularly for deposits. "Given the poor market conditions," BNZ was maintaining its prudent capital and liquidity positions," it said. "Margin pressure from higher funding and liquidity costs has continued and this has been compounded by additional costs under the Government's Retail Deposit Guarantee Scheme," NAB said. " Growth in lending volumes has continued to slow although ongoing repricing initiatives are assisting asset margins," it said. "The slowing economy combined with rising unemployment and falling investment is creating increased pressure on asset quality." * This article was first published yesterday in our daily subscription newsletter for the banking and finance industries. The email costs NZ$365 per annum and carries exclusive news and analysis for New Zealand banking and finance industry executives, regulators and investors. Sign up for a free trial here.