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ASB delivers owner CBA a higher return on equity than its major domestic rivals

Bonds
ASB delivers owner CBA a higher return on equity than its major domestic rivals

By Gareth Vaughan

Speaking in New Zealand in March Commonwealth Bank of Australia (CBA) CEO Ian Narev said the best measure of a bank's profitability was return on equity.

He'd therefore be happy to see CBA's subsidiary ASB with a higher return on equity than its major domestic competitors.  Based on annualised profit up to March 31, ASB's return on equity comes in at 18.2%, according to interest.co.nz calculations. Second, at 14.4%, was ANZ, followed by BNZ at 13.2%, and Westpac at 11.4%. All figures are calculated using figures in the banks' general disclosure statements.

Based on other key profitability measures released in the banks' half-year financial results, BNZ has the highest return on assets, and the equal lowest cost to income ratio with ASB. ANZ has the highest net interest margin.

Bank Return on equity Return on assets Net interest margin Cost to income ratio
ANZ  14.4%  1.1%  2.49%  44.7%
ASB  18.2%  1.1%  2.22%  40.3%
BNZ  13.2%  1.27%  2.40%  40.3%
Westpac  11.4%  1.20%  2.38%  42.5%

*ASB figures excluding return on equity are for the six months to December 31, 2012,  the other banks' figures are for six months to March 31, 2013.

In terms of half-year cash earnings, ANZ recorded an $87 million, or 14%, rise to $699 million, ASB a $24 million, or 7%, increase to $348 million, BNZ a $2 million, or 0.5%, rise to $387 million, and Westpac a $24 million, or 7%, increase to $370 million.

Combined the four recorded a $99 million, or 6%, rise in cash earnings to $1.804 billion. That compares with a combined $392 million, or almost 30%, rise in cash earnings last year.

See our story on ANZ's half-year results here.

See our story on ASB's half-year results here.

See our story on BNZ's half-year results here.

See our story on Westpac's half-year results here.

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7 Comments

...and the point of the article is???

 

I'm more interested in how these ROE's compare with other industries/companies.  How does an ROE of 12-15% compare to say, telco's or large format retail?

 

Can you explain why BNZ has a lower ROE than ASB yet it's CTI is equal, interest income higher and ROA higher?

 

Where's the insightful analysis, or is there another agenda here?

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There's no agenda. It's just a simple comparison of profitability measures.

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Some useful analysis Gareth.

Perhaps this could be expanded to include levels of bad debts and provisioning as a percentage of total loans (this probably explains BNZ's lower ROE which I believe could be due to its higher levels of bad debts/provisions compared to ASB). It would also be useful to see the levels of capital carried by each Bank compared to its asset base which will also impact ROE.

Comparisions with other industries won't be very meaningful - perhaps compare average ratios with Australian, US and UK/European banks to see how they stack up.

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Micks - simply stating numbers from a GDS ststement is not analysis - that' simple reporting.  It adds no value.

 

Agree that looking at capital levels is missing.  A useful analysis piece would have already conisdered that fact.

 

Please explain why you think a comparison to other industries is not to be considered?

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Mick, I did start off with a much longer list of comparisons including bad debts. This time around I ultimately just went with profitability measures, but next time will look to include more.
I agree with you that comparing bank ROEs with those of companies in other industries is a waste of time. That's an apples with oranges comparison given they're such different entities operating in different industries. 
We did, however, do this comparison of NZ banks versus overseas banks a while back - http://www.interest.co.nz/news/59937/new-zealands-big-four-banks-are-de…
Cheers.

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I agree with Father Ted, the industry comparatives would provide a really interesting view. Gareth not sure why you wouldn't think this was relevant??? From an investors point of view it is very relevant.

Without sounding like a bank supporter Banks are always the target becuase of their 'excessive profits' but big businesses with lots of capital need to have big profits to provide shareholders with a reasonable return. 

The media (in general) look at shallow measurements like "profit in absolute $ terms' let's debate whether banks are making super returns, I think we'll find that bank returns relative to other sharemarket participants are mid-pack. 

Garteh the NZ banks vs overseas bank comparison you provided above is also useful. ASB's ROE of 18.2% would seem to suggest it is one of the most profitable banks in the world (in ROE terms).

 

 

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Interest, if you really want an ROE comparison across industries, the NZ Bankers' Association commissioned this a while ago - http://www.interest.co.nz/bonds/62127/bank-lobby-group-says-nz-bank-pro…

I'd also add my comment from the thread on that story: "Whilst it can be fun to compare companies from different industries, I have a couple of questions. How many of the NZX companies have leverage as high as the banks (http://www.interest.co.nz/saving/bank-leverage), and how many listed companies had their earnings hit during this 5 year period by coughing up NZ$2.2 bln to the IRD to settle structured finance transaction tax dodge disputes?"

In terms of your point about industry comparisons from an ivestor's perspective I'd still say comparing a bank's ROE, with say a retailer, or telco has little relevance given they're such different types of entities. Wouldn't you be better off picking an industry that you wanted to invest in and then comparing across the different companies from within that industry?

 

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