ASB's annual profit rose 6% to a record high as its net interest margin, which measures the income generated from loans against the money paid to depositors and other lenders to the bank, rose 22 basis points to 2.44%.
ASB says June-year net profit after tax rose $88 million, or 6%, to $1.559 billion from $1.471 billion in the June 2022 year.
Total operating income rose $305 million, or 10% to $3.489 billion, with net interest income up $446 million, or 17% to $3.045 billion.
Operating expenses increased $150 million, or 14% to $1.258 billion. ASB says, excluding the impact of a provision released the previous year stemming from historical holiday pay, expenses rose 8% driven by higher staff costs from wage inflation, higher staff numbers - up 137 to 6,016, higher IT expenses and increased investment spend. ASB's cost to income ratio rose 60 basis points to 36.3%.
ASB's net interest margin rose 22 basis points year-on-year to 2.44% helped by higher margins on deposits for the bank. Its return on equity rose 20 basis points to 15%.
The bank's loan impairment expense rose $23 million, or 56%, to $64 million with this attributed to the impact of inflationary and interest rate pressures, and a decline in house prices.
"We are seeing clear signs that growth is slowing which reflects the broader economic environment. However, our balance sheet remains strong and resilient, which positions us well to continue to support our customers and the New Zealand economy," ASB CEO Vittoria Shortt says.
Looking at the first half of the June year versus the second half, CBA says ASB's net interest margin fell to 2.36% from 2.52% due to lower margins, higher wholesale funding costs and customers moving to higher yielding deposits.
'Deepened support options for those feeling pressure'
In a rising interest rate environment, Shortt says the bank has "proactively contacted" more than 12,000 customers to offer support as they refix home loans.
"While the majority seem to be well prepared and managing, we've deepened our support options for those feeling pressure."
"We have established a dedicated team to provide tailored assistance to customers who are concerned about their financial situation and we have grown our team of community bankers to improve access to banking services for those in vulnerable situations," Shortt says.
According to its parent Commonwealth Bank of Australia (CBA), ASB grew home loans $2.038 billion, or 3%, to $74.093 billion in its June-year. It grew business lending $946 million, or 5%, to $21.484 billion, and grew rural lending $65 million, or 6%, to $11.695 billion. Customer deposits increased $5.212 billion, or 8%, to $67.876 billion.
CBA put ASB's home loans market share at 21.5%, down from 21.6% year-on-year, its business lending market share at 17.3% up from 16.9%, and its customer deposits share at 18.5% up from 18.3%.
ASB's home loans at least 90 days past due rose to 0.34% at June 30 from 0.22% at December 31 last year. Impairment expenses annualised as a percentage of average gross loans rose to 0.06% from 0.04%.
CBA itself reported annual cash net profit after tax up 6% to A$10.164 billion. Its net interest margin was up 17 basis points to 2.07%, its return on equity rose 130 basis points to 14%, annual dividends per share increased 17% to A$4.50. CBA's common equity tier one capital ratio (CET1), as a percentage of risk weighted exposures, increased 10 basis points to 12.2%.
ASB's CET1 rose to 14.3% from 12.3% versus a minimum requirement of 8%. With $11.143 billion of total capital at June 30, ASB says it held $5.480 billion of capital in excess of its minimum requirement.
Meanwhile, ASB paid $700 million of annual dividends, down from $975 million last year.
CBA's full results release is here.
CBA's presentation is here.
66 Comments
Blackrock provide investment management services for ASB. If you invest your kiwisaver with them, Blackrock likely help manage your funds. If you have a mortgage with ASB and a current account/term deposits, I don't think Blackrock have anything to do with you.
You can always invest elsewhere (and I'd recommend you do as ASB are not cheap). My kiwisaver is with Simplicity, who use DWS International to manage their international equities (previously they used Vanguard).
Modern day banking is crony capitalism at its worst. Record profits in the good times (and into the hands of shareholders), then as soon as trouble strikes, the state intervenes and bails them out! We couldn't be further from free market capitalism if we tried (and yet we like to look at communism at say 'how terrible that system is' which is a very strange this to do given how both appear to be corrupt/disfunctional).
It doesn't make any sense at all from an ethical/moral perspective from the point of the average person on the street struggling to pay their mortgage.
Modern banking/prudent oversight/management is kaput in my opinion.
Don't get me wrong, if we had true free market capitalism, then great...but if we did, house prices wouldn't be where they are because risk would be correctly priced (interest rates would be much higher than they are - and would have been rising the last 10 years as debt/income ratios and risk levels were getting higher and higher), banks would be terrified of making bad loans (because they know nobody is going to bail them out if it all goes bad - perhaps the most important point) and a lot of our societies problems would disappear overnight (because our house prices relative to our incomes are the crux of many of our issues).
Agreed.
The problem is we have a free market when it comes to the little guy getting screwed over, but once you are "too big too fail" we have anything but a free market system. Of course risk is going to be mispriced if you don't face any actual risk in the first place, because you know the taxpayer will always be there to bail you out.
Free markets for thee but not for me.
But interestingly, the tax payer is also often the person getting screwed, and yet we do nothing about it.
It has been the wealthy, who own capital assets, who pay very little tax (because they structure their affairs to show very little income) who do well out of the status quo.
And hence why we have inequality at levels last seen in the 1920's just before the 1930's depression. Failing tax policy settings, failing monetary policy settings that benefit asset owners over workers. Governments who are incapable of making change, or for the likes of John Key go from being the PM to on the board with the bank with the biggest mortgage book against our housing market (this is crony capitalism).
And WHAT does the CC do about these behemoth control monopolies disguised as free market competitive good guys.
Take airline's and the code share monopolizing of fares and routes. Imagine if countdown and Pack and save were linked for food sharing ⚡️⚡️⚡️
Take Booking. Con and the ownership of their competition and the control of the first 5 pages of a Google search.
Take the CC , back in theday, allowing Air NZ to buy their only domestic competition in NZ ... Air Nelson, James Cook Air...
Democracy isn't that democratic!
Nah they are cool now because they throw a few bucks at green causes and promote diversidee and all that.
Coming up through the ranks at high school and university, when I first started developing an interest in politics and issues relating to the economy, I swear that those on the left were always inherently opposed to large corporations. I remember the days of Occupy Wall Street, of Michael Moore documentaries and the like. Maybe that was my youthful naivety, but the thought of it keeps burning away in my brain.
Now the left seems just as craven to big business as the right - from people worshipping the likes of Pfizer during Covid to overlooking all of Blackrock's shenanigans because there might be a windmill or two in it, what has happened?
More record profits, out of NZ all the way to the Commonwealth Bank of Australia. And then onto their biggest shareholder Vanguard Group who Im pretty sure and well intermingled with Blackrock. Perhaps they could just leave two years of profit here for the Green energy agenda....?
Aside from Blackrock overstepping their mandate by introducing ESG views into passive funds, I find the antipathy towards Vanguard and Blackrock, hard to understand. They're just massive, usually passive, low fee funds whose ultimate investors are largely mum and dad investors - not some shadowy hedge fund controlled and owned by Bill Gates and George Soros and their illuminati mates at WEF....
Black Rock are in partnership with WEF... https://www.weforum.org/organizations/blackrock-inc
There is an investment class that BlackRock started. Mortgage fund investment. Don't know if residential or commercial or a mix and they have failed to pay out for close to a year for those who wanted to redeem their investment. Because they are big doesn't mean to say they don't have dogs in their investment funds. Maybe guilty of fantastic return scenario and inadequate financial laws in the USA to pull them up.
We have established a dedicated team to provide tailored assistance to customers who are concerned about their financial situation
I wonder what this tailored assistance consists of ? Extending the terms of the loans ? Interest Only periods ? What else ? Does anyone know for certain ?
it's easy to profit when your industry is a closed market, with no competition and no innovation. It's almost as like banking isn't a free market. It's not true capitalism. We are forced to use a handful that all operate in the same manner and refuse to innovate.
Love sending a payment and it taking hours & hours to show in another bank. For some reason I can do this in crypto land for free and in 0.5s. This has been proven to be possible with less than 10k a month of hardware infrastructure to host networks that can handle over 4000 transactions per second.
Why are we still so far behind for such a large profit making industry.
ASB CEO Vittoria Shortt on the Funding for Lending Program (Aug 22):
"At the time FLP was introduced the purpose of it was to try and stimulate investment and that was the whole reason for creating it. So we took that purpose and we decided that we would use it for the long-term benefit for all New Zealanders,"
"FLP was never there to help banks. FLP was there to help investment for New Zealand."
"The really important part of the whole thing is that we passed on the full benefit to those customers. We haven't kept a dollar of it ourselves. All of it has gone to the people who are making those investments. And we think that is really fulfilling the purpose of FLP, the genuine intent of what FLP was there to do"
"We're going to use the lot. I still figure we've got a climate problem. I still think we've got to support housing construction. These are still real issues today, they haven't gone away,"
Apart from on communities on places like interest dot co where the issues are highlighted and discussed, the vast majority don't really understand any of this. I've even talked to bank foot soldiers. Their knowledge and understanding of it is non-existent or woeful. The blind leading the blind. The media is equally as ignorant and don't put in any effort (interest dot co journos, Bernard, Jenee are exceptions).
Awesome. This is great. What else can we expect from kiwis. Billion dollars going to foreign bank owners and without adding any value to the country. What value does a foreign owned bank add really??
And this is only possible because we sheeple people drown ourselves in debt by borrowing so ever higher amounts on buying houses from each other. Nothing can be more dumber in the history of civilisation.
God save NZ.
I really fail to understand why we pretend to have free markets when it comes to banking. It isn't a free market. It is socialism for rich bank shareholders. That is all it is.
Government intervention in the market can be only to improve or maintain status quo of shareholder interests.
When you have no choice, you take what you are given. That's the problem with an economy soaked with, and supported by, Private Debt. Our Government, whoever they are, will do as they are told. It's not that we need them more than they need us, it's that they don't need us at all if push comes to shove. When things get tough back home, and CBA calls in its capital from ASB, then we will realise how vulnerable we are.
So tax land.
Most of their lending is secured on land (with houses).
Let them call in the loans, take back the loans and land (with houses).
Then they pay the rates plus land tax or walk away from the land (with houses) wearing the loss.
Extreme example, there would be other consequences, but I feel it's just a matter of timing due to us living beyond our means. My point is they are only in control because NZ Inc. allow it.
Correct - whomever owns the land would be responsible for paying the LVT (when I say owns, I mean the name on the title, if it isn't the banks name then they won't be paying LVT).
This is another reason why I like LVT, overseas owners of houses (and there are plenty of them), will have to pay LVT even if they aren't currently tax resident in NZ. This will mean less tax is required from those of us living and tax resident in NZ.
The average kiwi's name will be on the title, so he/she will be paying the tax, even though the bank "owns " 90% of the property. So the $7,500 tax that the Aucklander will pay on his/her house (assuming a value of $1million) will in fact be a 7.5% per annum tax on his/her wealth.
Let them call in the loans, take back the loans and land (with houses).
At that point in my scenario, the banks name is on the title and therefore the bank would be liable to pay rates and land tax.
The title is either in the 'average kiwi's name' or the banks name. 0% or 100%.
Your "owns 90%" sounds like someone with 10% equity in their land (with house) but it is irrelevant when deciding who pays the LVT.
So the $7,500 tax that the Aucklander will pay on his/her house (assuming a value of $1million) will in fact be a 7.5% per annum tax on his/her wealth.
Incorrect. An LVT Land Value Tax is only applied on the land value. So if the house value was 1 million or even 50 million, there would be no tax paid on it.
However, assuming the land the house is sitting on is worth something, then the LVT would be [land value] x 0.75% under TOP's proposal.
A unique, and critical difference in my view, is that TOP is only taxing the land value. The Greens and others want and annual wealth tax but they're a poor cousin to an LVT.
Oh dear. What next? Do we start asking finance companies to stump up for car registration, insurance and fuel taxes, since they often "own" over 100% of what the car is worth the moment the vehicle hits the road?
Buy a fridge using a mortgage top up, better claim the GST back from the bank too.
You're being too naive Muzza. Firstly I'm not a fan of an extra LVT, because we already have one - its called rates. Secondly are you aware that the Government, specifically Hipkin's indicated that there wasn't enough tax income? So your comment "This will mean less tax is required from those of us living and tax resident in NZ" will never come to pass. Besides history tells us that once a door to tax is opened, no politician will ever willingly close it. Some recent examples tax thresholds - the government is resistant to implementing a tax free threshold, or adjusting current thresholds to account for wage levels increasing. An older example - GST was promised on the basis that at 12% it would fully replace PAYE. We are now at 15%, and still with PAYE un-altered, and the Government on occasion has even discussed pushing GST to 17%. Connect that to the tax thresholds and you get a pretty good picture of politicians attitudes. So frankly I cannot and will not accept TOP's tax policies that require the Government to give, to get. In pwer they would impose a LVT but will NEVER reduce other taxes to compensate. Mark my words - if Three Waters goes through, it will have a similar effect.
Too naive! Thank you, I'll take that complement Murray! Appreciate your questioning my love affair with LVT and a tax-free threshold per TOP's policy, if I cannot defend it then I need to reconsider my position.
On this occasion I think your beef isn't with the concept nor TOP's policy. It seems to me that you don't trust the existing politicians to do what their policy states (or spend money wisely). On these matters I 100% agree with you. This is another reason why I'm prepared to give someone completely new a try aka TOP.
What central (LVT) or local (rates) government should spend on is an entirely different, but equally important, discussion to have.
Too many people pointing a finger at ASB and other large banks. RBNZ must bear some of the blame but it really comes down to the govt of the day and the finance minister. Any finance minister has the ability to issue a a carefully worded remit in the way RBNZ is to act but real change can only come in amending the reserve bank act without necessarily impinging on the oft touted RBNZ independence. Its independent when its suits the politicians to say so.
This obscene profit on the back of record net interest margins begs the question why do banks automatically pass on increases in the ORC to all of their borrowers. Those that are under the most financial stress due to high mortgage servicing costs are certainly not the ones that Adrian Orr is targeting to reduce spending habits in order to rein in inflation; they don't have the spare money. Unfortunately, these over-leveraged households simply become the ones contributing most to the banking sector's record profits.
Those with the spare money (in the majority of cases) are those that own a lot of assets (because that has been the most tax efficient way of building wealth in NZ with no comprehensive capital gains tax) - and no government is willing to hit them with taxes to remedy the distortion we have in the economy (where policy has favored the wealthy in recent decades and increased inequality).
When you have weak governments, who are enabling the problem, how do we ever come to a resolution and move forward as a nation?
They would need to sell those assets to liquidate it into money. There are quite a lot of older savers in NZ that have squirelled away their money over time and not done it on the back of assets and buying and selling houses. Think back to all those that lost billions when the finance companies collapsed around the time of the GFC.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.