NZ$1 billion turnaround in the big four banks June quarter profits

The country’s big four banks recorded a jump of more than NZ$1 billion in June quarter unaudited profit.

The figure was, however, skewed by the fact that BNZ provisioned for its structured finance transaction tax payout to the Inland Revenue Department in the June quarter last year, which pushed it to a NZ$583 million loss for that quarter.

Based on figures in the bank’s June quarter general disclosure statements the big four – ASB, ANZ, BNZ and Westpac - recorded profit of NZ$632 million in the June quarter this year compared to an overall loss of NZ$410 million in the same period last year. That’s a swing of NZ$1.042 billion.

Going through the four individually, ASB recorded a 57% rise in June quarter profit to NZ$140 million from NZ$89 million. ANZ’s profit rose more than fourfold to NZ$234 million from NZ$56 million, Westpac’s profit more than trebled to NZ$97 million from NZ$28 million and BNZ recorded a profit of NZ$161 million versus a NZ$583 million loss.

In the nine months to June this year BNZ paid just NZ$4 million of income tax. That's because it provisioned NZ$661 million from the structured finance dispute after losing to the IRD in the High Court. Once it joined the other major banks in settling the cases last December, and agreeing to pay 80% of the core tax in dispute, plus interest, BNZ was able to apply the unused portion of the provision resulting in a tax credit of NZ$167 million. This slashed its income tax for the nine months to June this year to just the NZ$4 million.

Impairment charges fall

Aside from BNZ's tax issues, the main driver of the turnaround was falling impairment charges. These totaled NZ$577 million across the big four banks in the June 2009 quarter. But in the June quarter this year, ANZ’s impairment charges fell to NZ$83 million from NZ$244 million and Westpac’s tumbled to NZ$27 million from NZ$199 million. ASB recorded NZ$125 million worth of impairment charges for the year to June 2010 compared to NZ$133 million for the nine months to March. In the three months to June last year, ASB booked NZ$91 million.

Meanwhile, BNZ’s impairment charges rose slightly to NZ$47 million in the three months to June from NZ$43 million in the same period last year.

The three New Zealand owned banks – Kiwibank, TSB and SBS Bank – recorded combined profit of just NZ$20.29 million for the June quarter.

Government owned Kiwibank’s profit fell 57% to NZ$10 million from NZ$23.47 million. Outgoing Kiwibank CEO Sam Knowles said last month the Reserve Bank’s introduction of the core funding ratio (CFR) and the increased cost rival Australian owned banks face when tapping international wholesale funding markets for term debt had changed the domestic bank funding landscape. This increased Kiwibank’s funding costs and was the major factor in a 13% fall in June year profit after tax to NZ$45.8 million as net interest income fell 18% to NZ$133.39 million.

Kiwibank’s net interest to average total assets margin fell to 1.2% in the June year from 1.9% in the previous year.

The CFR sets out that banks must source at least 65% of their funding from retail deposits and bonds with durations of at least one year. The central bank wants to increase the CFR to 75% by mid-2012 to offset New Zealand banks previous reliance on international wholesale, or 'hot' money, markets. Knowles said this had “changed the balance” for New Zealand owned financial institutions like Kiwibank.

“They really can’t be competitive these days unless they go offshore because they need that (overseas funding) to get the average cost of funding down,” Knowles said.

TSB and SBS

However, both TSB and SBS Bank’s profit was hit by one-off tax charges of NZ$3.9 million and NZ$2.2 million respectively, to cover tax changes relating to the removal of depreciation on buildings with a life of 50 years or more.

TSB was also hit by a NZ$2.26 million fall in income from derivative financial instruments to NZ$3.57 million. It recorded unaudited net profit after tax of NZ$8.69 million, down 42% from NZ$14.87 million in the same period of last year. SBS’s unaudited net profit for the three months to June fell about 55% to NZ$1.6 million from NZ$3.6 million in the June quarter last year.

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