Bad and doubtful debts on business loans hit BNZ's third quarter earnings as parent NAB's cash earnings hold steady

Bank of New Zealand's earnings fell in the third quarter as charges for bad and doubtful debts on business loans rose, BNZ's parent National Australia Bank (NAB) says.

In its trading update for the third quarter, or three months to June 30, released today, NAB's only other mention of BNZ was that New Zealand customer deposits grew strongly.

"NZ Banking earnings were lower in the quarter primarily due to an increase in the charge for bad and doubtful debts on business exposures from the relatively low levels in the first half," NAB said.

At a group level, NAB said its unaudited cash earnings were unchanged at A$1.4 billion with revenue down 1%.The bank made no mention of net interest margins.

NAB's charge for bad and doubtful debts for the quarter was A$524 million, up from A$443 million in the same period of last year. Meanwhile, NAB said it had raised about A$27 billion of term wholesale funding so far in its financial year. The weighted average term to maturity of the funds raised was 4.9 years.

"This quarter's result is set against a backdrop of ongoing challenges in the global economy with continued uncertainty in the Euro-zone and the United States, volatility in global financial markets, and slowing growth in the big emerging economies," NAB CEO Cameron Clyne said.

"Although subdued business and consumer confidence continues to affect the Australian economy, we remain positive about the outlook."

NAB said its ratio of 90+ day past due and gross impaired assets to gross loans and acceptances was 1.72% at June 30, down slightly from 1.73% at March 31.

In May BNZ posted record half-year cash earnings of NZ$385 million, up NZ$102 million, or 36%, from the same period of the previous year. BNZ CEO Andrew Thorburn told interest.co.nz at the time BNZ's low half-year credit impairments - they fell NZ$61 million, or 64%, to NZ$34 million - were "extraordinarily" low and not sustainable.

"Because if you look at the pressures still in retail, small business, the effect of the exchange rate, and also things like kiwifruit and Christchurch, there's some uncertain domestic times ahead," Thorburn said then. "And whilst we feel that we've probably got through the worst of the credit cycle and the recession, we don't think that the bad and doubtful debt number is going to stay at this low level."

However, he said BNZ's 2.41% net interest margin for the six months to March 31, was sustainable. This was up 6 basis points from September 30 and up 17 basis points from March 31, 2011.