ASB chief financial officer explains disappearance of impairment losses as corporate client provisions 'cure themselves'

By Gareth Vaughan

ASB's huge September quarter turnaround in impairment losses stemmed from the "curing" of some large provisions for major corporate clients.

The bank's September quarter General Disclosure Statement (GDS) shows ASB recorded a NZ$1 million impairment recovery compared to NZ$77 million of impairment losses in the same period last year. This turnaround helped boost ASB's bottom line with unaudited net profit of NZ$150 million for the three months to September 30 versus a loss of NZ$124 million in the same period last year when the bank also provisioned for its structured finance transaction dispute with the Inland Revenue Department.

ASB's chief financial officer Shayne Bryant told interest.co.nz that the big turnaround in impairments was a "timing issue." Improved home loan arrears was a contributor to the turnaround, but the major factor was a couple of large provisions from corporate clients that ultimately "cured themselves."

"(This) simply means that obviously with a couple of our larger clients, providing for them because they're having difficulties, providing for a potential impairment there and they've resolved their difficulties and no longer need that provision," Bryant said.

He declined to name the clients involved or give the size of the provisions referred to.

Bryant said ASB didn't expect to record impairment losses for the year to June 2011 at the levels recorded in the year to June this year because of improved economic conditions. ASB's impairment charges for the June 2010 year were NZ$125 million.

'Always looking' to grow mortgage book

Meanwhile, Bryant said ASB was "always looking" to grow its mortgage book but in an "appropriate" way.

"So we're not looking to write risky business and we're not looking to write unprofitable business," he said.

Figures in September quarter GDS show the bank's value of residential mortgage approvals, provided in ASB's loan to valuation ratio (LVR) data, stood at NZ$42.098 billion at September 30. That's down NZ$204 million from NZ$42.302 billion at June 30.

Reserve Bank data shows total housing credit at NZ$170.786 billion at September 30, up 2.5% year-on-year and up NZ$288 million from August.

The LVR data shows, as a percentage of total exposures, 3.8% of ASB's residential mortgages ranged from 90.1% to 100% with 9.6% in the 80.1% to 90% range. That's down from 3.9% and 9.8%, respectively, at June 30.

Bryant said although ASB tightened its credit policy last year in the above 80% LVR ranges, it was still doing "appropriate" business at those levels.

"There's good business to be written in that area," said Bryant. "It's not an area that we're just not writing business in. It's simply that we're fairly picky about it and I think we've been doing a good job on it."

Meanwhile, Bryant wouldn't be drawn on whether ASB had decided yet to issue covered bonds, as rival BNZ has this year and Westpac plans to do next year. However, he described covered bonds as a viable source of funding from both diversification and cost perspectives.

"We'd be interested in it from that perspective. I would expect it's something you'll hear from all banks (on) in the near future," said Bryant.