The Bank of New Zealand (BNZ) is expecting credit losses from the two big Christchurch earthquakes of up to NZ$60 million having made provisions of this size to cover them.
The bank made this comment in its interim results, which show a NZ$28 million, or 11% rise, in cash earnings for the six months to March 31, versus the same period of the previous year, to NZ$283 million.
BNZ says the rise reflects "robust" underlying profit growth of 10.5% and increased margins because of "repricing for current market conditions" and rising customer demand for more lucrative variable, or floating, rate housing loans. About 48% of the bank's lending is in housing.
"Overall this solid half-year performance has been built on good revenue and deposit growth, prudent cost management and our ability to bring innovative new products and services to the local market," BNZ CEO Andrew Thorburn said.
Net interest income rose by NZ$45 million, or 8%, to NZ$640 million. Net operating income was up 6% to NZ$865 million and operating expenses up 1% to NZ$369 million.
BNZ's NZ$60 million earthquake provisioning compares with a NZ$40 million hit to Westpac's first-half cash earnings from the February earthquake. Westpac also says its provisions for the quakes amount to NZ$56 million for the February 22 one and NZ$10 million for the September 4 one. Meanwhile ANZ says it has re-allocated existing collective provisioning to cover earthquake costs.
Lending growth still weak
Gross loans rose just under 1% to NZ$55.4 billion from NZ$54.9 billion at September 30 last year. Over the same time period, total assets rose to NZ$57.8 billion from NZ$57.6 billion. Net interest margins were flat from the first-half year at 2.24%, but up 16 basis points year-on-year from 2.08%. BNZ's cost to income ratio rose slightly, to 42.7% from 42.6% in the first-half year.
Retail deposits rose by NZ$1.6 billion over the six months to March to NZ$30.4 billion. Thorburn said the banks' "focus" on deposits had seen a continued increase in its retail deposits in a highly competitive market.
Bad and doubtful debt charges rose by NZ$7 million, or 8%, from the same period of last year to NZ$95 million, although this was NZ$4 million down on the first-half year. The bank's assets past due by 90 days or more plus gross impaired assets as a percentage of gross loans rose to 1.96% at March 31 from 1.75% at September 30 last year and 1.85% a year earlier.
BNZ said its Core Funding Ratio (CFR) was "well ahead" of the Reserve Bank's planned 70% minimum from July 1. Currently the CFR is set at 65%. This means banks must secure 65% of their funding from retail deposits and wholesale sources such as bonds with maturities of more than one year.This will be lifted to 70% from July.
BNZ's parent National Australia Bank (NAB), meanwhile, recorded a 22% rise in cash earnings for the six months to March to A$2.7 billion.
"New Zealand is continuing its slow economic recovery from the recent recession although the earthquakes in Christchurch have slowed the rate of recovery," NAB said. "The earthquakes provision includes an amount taken during the prior financial year as a result of the first (September) earthquake."
(Update adds further detail).
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