ASB lending growth slumps; pays CBA smaller dividends

ASB lending growth slumps and dividend drops

The net increase in money loaned by ASB tumbled by almost 75% in the nine months to March from the same period of the previous year and dividends paid to its parent, Commonwealth Bank of Australia (CBA), almost halved as banks tightened the screws on customers amid recession and the rising cost of their own borrowing.

ASB's General Short Form Disclosure Statement for the nine months to March 31 shows its net increase in advances to customers at just NZ$675 million, well down on the NZ$2.7 billion in the nine months to March 2009. the bank’s net increase in customer deposits was barely more than half the NZ$2.8 billion secured in the nine months to March 2009. Overall ASB's customer deposits rose to NZ$31.4 billion from NZ$30.6 billion. At NZ$53.5 billion, overall loans to customers rose just 2% year-on-year.

This comes against a backdrop of all the major banks seeking to grow their share of the retail deposit market to help meet new Reserve Bank core funding ratio requirements and reduce reliance on increasingly expensive overseas wholesale funding lines. Chief Financial Officer Shayne Bryant last week told interest.co.nz ASB was booking negative margins on term deposits and expected this to continue over the coming year.

According to BNZ managing director Andrew Thorburn, the competition for customer deposits is the toughest it has ever been. The global financial crisis has increased the costs of borrowing offshore for the banks and the Reserve Bank, concerned about a potential over reliance on international short-term debt, now wants banks - within two years - to source up to 75% of their funding from domestic retail investors and from longer term bonds. Last November the Reserve Bank estimated the major banks all had a core funding ratio above the 65% minimum, introduced last month, but most were only slightly above it.

Meanwhile, dividends ASB paid to CBA totalled NZ$83 million, little more than half the NZ$156 million it paid up in the nine months to March 2009. As expected ASB’s nine-month net profit after tax tumbled. It fell by NZ$240 million, or 71%, to NZ$96 million after the bank coughed up the bulk of its structured finance transactions settlement with the Inland Revenue Department.

Along with ANZ, BNZ and Westpac, ASB agreed to pay up to settle long running court cases just before Christmas. ASB's share of the NZ$2.2 billion paid to IRD by the banks wasNZ$264 million, or 80% of the tax and interest in dispute. ASB coughed up NZ$209 million of this during the nine month period.

The bank’s interest income fell NZ$758 million or 20% to NZ$2.9 billion. However, interest expense fell by more, NZ$807 million, or 27%, to NZ$2.18 billion. This left net interest earnings up NZ$49 million, or 7%, to NZ$761 million.

Other income dropped 35% to NZ$285 million with a NZ$74 million fall in services and commission income to NZ$312 million a major contributor. Total impaired assets stood at NZ$485 million, down from NZ$522 million at December 31, with NZ$299 million in the corporate sector and NZ$172 million stemming from residential mortgage business.

Ninety day past due assets totalled NZ$347 million at March 31 versus NZ$318 million at December 31, with NZ$290 million in residential mortgages. ASB's  total assets were down to NZ$64.6 billion from NZ$65.5 billion.