BNZ interim profit slips 8.6% (Update 2)

By Gareth Vaughan BNZ's cash earnings fell 8.6% to NZ$255 million in the half-year to March from the same period of the previous year due to weak business credit demand, intense competition for deposits and high funding costs. (Updates add NAB group detail and BNZ comment and statement). However, BNZ chief executive Andrew Thorburn  said when compared to the September 2009 half-year, cash earnings rose 7.1%. This was encouraging, indicating the worst of the recession was over. "Growth is improving, although subdued business and household credit demand, along with higher funding costs, will continue to be key factors," Thorburn said. The bank said its retail deposit market share rose to 17.5% from 16.1% since March 2009. Its net interest margin increased to 2.08% from 1.96% at September 30 but was 8 basis points lower than at March 2009.  Charges for bad and doubtful debts fell by NZ$11 million from the March 2009 half to NZ$88 million, in line with the September half. Thorburn said it was a good performance overall in the context of New Zealand's emerging recovery from the recession. "I am pleased that we have managed to further strengthen the fundamentals of the bank in a challenging environment," Thorburn said. " BNZ has bolstered its balance sheet position with higher capital ratios, liquidity levels and an increase in domestic funding." NAB group net profit, meanwhile, fell 21.6% to A$2.1 billion which the bank attributed to accounting volatility from significanty lower movements of financial instruments. Group cash earnings were up 8.2% to A$2.2 billion from the March 2009 half.  Revenue fell3.3% to A$8.2 billion and expenses climbed 2.4% to A$3.9 billion. NAB will pay a A74 cents per share fully franked interim dividend, up A1c. NAB said it was continuing to pursue its options to obtain approvals for its proposed acquisition of the Australian and New Zealand operations of AXA Asia Pacific Holdings.  This is despite the Australian Competition and Consumer Commission's move to oppose NAB's proposed acquisition of AXA but not oppose a rival move on Axa by AMP Limited. Read BNZ's statement below

Bank of New Zealand has today reported cash earnings of $255 million for its core New Zealand Banking operations in the six months to 31 March 2010. This was an increase of 7.1% on the previous half year to September 2009, but down 8.6% compared to the same period last year. BNZ CEO Andrew Thorburn said, “It’s a sound half year result. Overall it is a good performance in the context of New Zealand’s emerging recovery from the recession.” “I am pleased that we have managed to further strengthen the fundamentals of the bank in a challenging environment. BNZ has bolstered its balance sheet position with higher capital ratios, liquidity levels and an increase in domestic funding.” BNZ’s total capital ratio at 12.03% is well above the Reserve Bank’s required minimum of 8.0%. Tier 1 capital ratio at 9.03% is also well over the 4.0% regulatory minimum. Mr Thorburn said the result and conditions when compared against the September 2009 half year were encouraging and indicate that the worst of the recession is behind us. Looking forward growth is improving, although subdued business and household credit demand, along with higher funding costs, will continue to be key factors. “As the economic outlook improves BNZ is well positioned to continue supporting our customers and assisting business growth. We are proud of the fact that we have been able to stand by our customers during difficult times. ” BNZ has focused on actively diversifying and lengthening the term funding profile of the balance sheet. In an intensively competitive market for customer deposits BNZ achieved a 9.1% increase in average volumes over the last year, while deposit rates have risen significantly. Retail deposit market share increased to 17.5% from 16.1% in March 2009. Maturing wholesale funding that is being replaced at higher market rates was also driving up total funding costs, said Mr Thorburn. “All of our wholesale funding raised in the six months to 31 March 2010 was completed without the use of the Government Guarantee which shows strong investor confidence in BNZ.” BNZ’s New Zealand Banking net interest margin was 2.08% in the six months to the end of March 2010. The margin was up 12 basis points on the half year to September 2009, while being 8 basis points lower compared to the March 2009 half. BNZ increased its average lending over the half year by 4.0% compared to March 2009. While the total banking system business credit has declined in the last half, BNZ managed to maintain business market share. * Housing market share was 15.8% at March 2010 compared to 15.5% in March 2009 * Agribusiness market share was 19.0% at March 2010 compared to 18.2% in March 2009 Asset quality has been a key area of attention with additional resources dedicated to managing risk and assisting distressed customers. Leading asset quality indicators show the growth rate of impaired assets during 2009 has declined and is stabilising. The charge of $88 million to provide for doubtful debts in the last six months is in line with the previous half year to September 2009 and down by $11 million compared to the March 2009 half year. BNZ’s historically conservative lending approach, active monitoring and strong risk management approach has ensured good asset quality has been maintained through a difficult economic environment. Results for the total BNZ legal entity (General Disclosure Statement view) which includes both New Zealand Banking and BNZ’s Wholesale business reported a headline profit of $415 million in the six months to 31 March 2010, a 3.8% increase on the same period last year. Andrew Thorburn said, “I am proud that through tough conditions BNZ has continued to invest in building community partnerships and helping our customers as an essential part of our commitment to New Zealand.” BNZ key non-financial highlights in the half year include: * Opening five new BNZ Partners Business Centres (Whangarei, Invercargill, Dunedin, Henderson and Hastings) with 14 more to follow this year as part of a nationwide business centre network and integrated model to better support business growth. * ‘Closed for Good’ on 4 November 2009 when 3,500 BNZ employees used one of their two annual volunteer days to work on more than 500 community projects. * Two new significant sponsorships becoming the major sponsor of the New Zealand teams in the Rebel Sport Super 14 Rugby competition. BNZ is also the new principal partner of Plunket, which is New Zealand’s largest provider of support for children under five years of age. Recognising the importance of attracting and retaining talent BNZ has focussed on building a great culture, which is reflected in the latest employee engagement and enablement scores. BNZ’s latest overall employee engagement score of 76% is on par with global high performing organisations. Andrew Thorburn said, “BNZ is in a strong position and committed to supporting customers through the recovery and building for future growth. Maintaining our focus on customers and balance sheet strength will ensure we remain profitable and can invest in New Zealanders’ success and our community.” BNZ has an AA Standard & Poor’s credit rating.