ASB says Christchurch support package will cost it a 'significant amount' of money

By Gareth Vaughan

ASB says the Christchurch support package it announced over the weekend will cost the bank a "significant amount" of money.

In a press conference in Christchurch with Prime Minister John Key on Saturday, incoming ASB CEO Barbara Chapman who is set to take the helm on April 26 replacing Charles Pink who left last November, touted ASB's initiative as a NZ$250 million investment programme to support the rebuilding of businesses and the community in Christchurch after the devastating February 22 earthquake.

The package consists of a Christchurch Business Rebuild Fund, Christchurch New Business Fund, concessions for home loan and personal lending customers, plus up to NZ$1 million of community grants.

Interest.co.nz asked ASB how much new lending in total it expected its Christchurch package to result in. In an emailed response Catherine McGrath, ASB's chief executive for customers, markets and products, said the New Business Fund allowed for up to NZ$100 million of new lending.

And asked whether the package would cost ASB in terms of lost profit or income McGrath said: “Precise numbers are commercially sensitive, but we expect it to cost a significant amount."

ASB is, however, happy to invest in Christchurch given its importance to New Zealand’s future and current need for additional support, she added.

McGrath said ASB's offer to both existing and new business customers of interest free loans for a year didn't mean customers would have to make up the interest in future years. However, principal not repaid during the first year would need to be repaid at some time during the term of the loan, or when the loan term is extended.

Six month payment holidays for home loan customers would mean interest on the loan continues to accrue and capitalise at the concessional rate of 1% off variable rate loans for a year or 0.5% off fixed rate loans for 12 months.

"This will assist customers with immediate cash flow difficulties. Amendments to repayment terms can also be discussed at any time,” said McGrath. “Where a loan is not interest free and a payment holiday applies, interest accrues and is capitalised at the concessional interest rate.”

She said normal lending criteria will apply for the Christchurch package.

"However our focus is on longer term cash flows, as opposed to their cash flow over the first 12 months. We expect cash flows to be viable in 12 to 24 months, however we will continue to work with our customers as they recover from the effect of the earthquakes.”

ASB's rival Westpac recently said it expects the earthquake to cost it credit losses of between NZ$30 million and NZ$100 million. And BNZ CEO Andrew Thorburn told interest.co.nz his bank expects a "manageable" outcome from earthquake related credit losses.

Lower market share

ASB, which opened its first branches in Christchurch as recently as 1993, is thought to have less marketshare in the city than its main rivals ANZ, BNZ and Westpac.

Asked whether ASB expected the package announced on Saturday to enable it to retain loans as performing loans that otherwise might be non-performing given the impact of the earthquake on customers' homes and businesses, McGrath said: “Some businesses will experience cash flow interruption, higher costs, or loss of income over the next 12 months in particular. Our package gives ASB customers substantially impacted by the quake more liberty to focus on getting back on their feet.”

ASB is also offering reduced credit card fees. The fees, currently ranging from 12% to 19.45% per annum, will be cut for customers "severely impacted" by the earthquake to the Fringe Benefit Tax rate of 6.24% for 12 months. The bank's personal loan rates, advertised at 14.95% per annum for secured loans and 17.95% per annum for unsecured loans, are being reduced to ASB's floating home loan rate which is currently 5.75% for 12 months together with a potential six month payment holiday.

Also see Amanda Morrall's story on the deals offered by all the banks in the immediate aftermath of February's earthquake.

ASB's Christchurch package comes after the bank launched a NZ$1 billion Job Creation Fund amid much fanfare on the eve of the government's Jobs Summit in February 2009. Many months on from that initiative, nearly 90% of the money hadn't been lent.

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