ASB's half-year profit fell 11% as its net interest margin, the difference between what the bank borrows money at through the likes of deposits and what it lends it out at, dropped 26 basis points.
ASB's net profit after tax for the six months to December 31, 2023 fell $91 million, or 11%, to $749 million from the record high $840 million in the six months to December 2022.
The bank's net interest margin declined to 2.21% from 2.47%.
"Bank profitability is inextricably linked to the New Zealand economy and the environment in which we are operating and the interest rate cycle has been a big influencing factor on the results we've posted," ASB CEO Vittoria Shortt says.
Income falls, expenses rise
The bank's net interest income fell 7% to $1.403 billion, and other operating income dropped 10% to $237 million. ASB's operating expenses increased 6% to $648 million, with technology investment, and higher salary and wage costs cited as the reasons.
The bank's impairment losses on loans fell $39 million to $10 million driven by lower home loan provisioning. ASB said its cost-to-income ratio rose 510 basis points to 39.5% from just 34.4%.
Total lending fell 1% in the six months from June 30 to December 31, 2023 to $108 billion, with home, business and rural lending each dropping 1%. The bank said deposits rose 4%.
CBA profit down, dividend from ASB up
Commonwealth Bank of Australia (CBA), ASB's parent, posted a 3% drop in interim cash profit after tax to A$5.019 billion. Its net interest margin fell 11 basis points to 1.99%, and its cost-to-income ratio rose to 44% from 42.4%. CBA's dividends per share rose 2% to A$2.15, and its return on equity fell 40 basis points to 13.8%. The group's common equity tier one capital ratio rose 10 basis points from the second-half of its prior financial year to 12.3%.
Meanwhile, ASB paid interim ordinary dividends of $800 million, up from $400 million in the prior interim period.
Figures in the CBA results show ASB's 90+ days home loan arrears at 0.41% at December 31, versus 0.22% a year earlier, and 90+ days consumer finance arrears at 0.83% versus 0.51%. Cost of living pressures and higher interest rates were cited for the rises.
CBA says ASB's total full time staff numbers rose 31 over the year to December 2023, reaching 5,929.
'Laser focused'
ASB says it's "laser focused" on the problem of fraud and scams, expecting to spend almost $100 million this financial year on preventing fraud, scams, financial crime and cybersecurity. It says it has a team of more than 350 people dedicated to this.
Meanwhile, Shortt says more than two-thirds of ASB's home lending customers are now paying interest rates of more than 6%, with the vast majority "managing well." The bank's mortgage serviceability test rate, which it uses to test wannabe borrowers ability to repay, is now at 8.95%.
"Our teams are proactively contacting business and personal lending customers to provide support as they move to higher interest rates," she says.
ASB's total capital ratio was unchanged year-on-year at 15.5%, above the 12.5% required by the Reserve Bank.
12 Comments
The level of the OCR actually has little direct bearing on bank profits.
What does have a far greater bearing on their profits is rising house prices and a bigger loan book (and managing their expenses better).
On the expenses note - expect some big layoffs across the finance sector as they drop the additional heads they thought they needed through and after covid madness.
(Debt collectors will do well though. Does the NZSE still have any?)
"Bank profitability is inextricably linked to the New Zealand economy and the environment in which we are operating and the interest rate cycle has been a big influencing factor on the results we've posted," ASB CEO Vittoria Shortt says.
Given that the vast bulk of their lending is for residential property they could have been much more honest with that assessment. Classic CEO deflection. No. Wait! Is she actually saying the housing market is our economy?
Being heavily overweight on housing in the lending book and not enough TDs has dented the best NIM of the big four. No wonder ol Matt came out saying they're focusing on home lending margins.
I'd imagine ANZ and BNZ won't be hit as hard on their NIM given ANZs large deposit book (as opposed to wholesale funding) and BNZs business lending look.
Bank profitability is inextricably linked to New Zealand house price growth and the low term deposit rate environment in which we were operating, and a less accommodating Reserve Bank has been a big influencing factor on the results we've posted.
Fixed it for ya Vittoria. She could've said a bunch more about the debt creation model and the ignorance of NZers. If the RBNZ head can admit it then surely the banking industry can be honest too.
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