Annual net profit up 20% at BNZ to NZ$695 mln boosted by income, deposit and lending growth

Annual net profit up 20% at BNZ to NZ$695 mln boosted by income, deposit and lending growth

BNZ's annual net profit after tax rose 20% boosted by rising income and a significantly lower loss on financial instruments, such as derivatives and swaps.

The bank said net profit rose $115 million, or 20%, to $695 million for the year to September 30 from $580 million the previous year. Total operating income was up $261 million, or 16%, to $1.905 billion. Operating expenses rose $49 million, or 6%, to $843 million. Losses on financial instruments reduced to $94 million from $233 million.

Earlier, parent National Australia Bank (NAB) said BNZ's annual cash earnings after tax rose $47 million, or 6%, to $788 million from NZ$741 million the previous year. NAB said the increase was driven by improved revenue and supported by good lending and deposit growth.

BNZ's customer deposits rose 12% to $38.5 billion, which NAB said gave BNZ 19.3% marketshare up from 18.8%, and gross loans and acceptances rose 5% to $60.6 billion.

Annual impairment losses on loans rose $52 million, or 85%, to $113 million.

BNZ's other operating income rose 16% to $434 million, outpacing a 4% rise in net interest income to $1.565 billion. Adrienne Duarte, BNZ's chief financial officer, told interest.co.nz "other income" was boosted by fee income stemming from customers switching to fixed from floating rate mortgages. This included commitment fees, drawdown fees, and lending related line fees.

The latest Reserve Bank figures show as of September, some 56.01% of industry wide mortgage debt was fixed versus 43.99% floating. Twelve months ago just 42.36% was fixed and 57.64% was floating.

BNZ's other income was also boosted by "card interchange income" as credit and debit card use rose 13%, institutional banking fees, and sales of products to manage currency and interest rate risk, Duarte added.

'Important growth in deposits'

"It has been a very challenging year regulatory wise, and we're very pleased that we've grown (market)share particularly in deposits, which for a bank is really important to get quality deposits," BNZ CEO Andrew Thorburn told interest.co.nz. "Yet we've kept investing in our brand, in our technology platform, and in digital capability. So all things considered we think it has been a good year for us."

Thorburn noted that BNZ had grown its share of the agribusiness lending market by 29 basis points to 22.0%.  He attributed the bank's increased costs to investment in technology (BNZ launched a $400 million, five-year "NextGen" programme), improving customer service, and BNZ's "be good with money" brand campaign.

At $695 million, BNZ's annual profit was shy of its record high $785 million which it made in 2008. Both ASB and ANZ have reported record annual profit this year for the third straight year of $705 million and $1.372 billion, respectively. Westpac reports its financial results on Monday.

BNZ (as reported by NAB) 2013 2012
Cash earnings on average assets 1.27% 1.24%
Net interest margin 2.36% 2.39%
Cost to income ratio 40.3% 40.6%
Jaws (income growth rate - expense growth rate) 0.8% 3.9%
Loans at least 90 days past due plus gross impaired assets to gross loans 1.09% 1.21%

The fall in net interest margin was attributed to increased deposit rates paid to customers, and borrowers' preference for lower margin fixed rate mortgages, as opposed to floating rate loans, although the latter was partly offset by lower wholesale funding costs. For the second half-year BNZ's net interest margin dropped seven basis points to 2.33%.

NAB recorded a A$503 million, or 9%, rise in annual cash earnings to A$5.94 billion. This was in line with the consensus of analysts' expectations. It'll pay a fully franked final dividend of A97 cents per share, which is up A7c, and takes annual dividends to A$1.90, a 6% increase. The group's return on equity rose 30 basis points to 14.5%.

Here's BNZ's press release, see NAB's press release here, its full release here, and its presentation here.

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I wonder how much BNZ's earnings were bolstered by a downward mark to market revaluation of outstanding debt over the June to September 2013 quarter? The accumulated reduced buy back cost of such debt must have been significant as the yield spreads to the US 10yr Treasury bench mark probably widened as well rising in absolute yield terms.
 
The primary difference between the two numbers is a non-cash item relating to the revaluation of financial instruments, which wiped a notional $233 million off BNZ’s bottom line last year, but only $94 million this year. Read more
 
Despite the strong rise in cash earnings, BNZ's annual net profit attributable to NAB as its shareholder actually fell NZ$91 million, or 14%, to NZ$580 million after a NZ$353 million swing on gains less losses on financial instruments at fair value, such as derivatives and swaps, which came in at a loss of NZ$233 million versus a gain of NZ$120 million last year. BNZ's record annual net profit of NZ$785 million was recorded in 2008. Read more