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Big increase in ASB dividends as half-year profit rises 7% with income growing at more than twice the rate of expenses

Big increase in ASB dividends as half-year profit rises 7% with income growing at more than twice the rate of expenses

ASB's half-year profit rose 7% to a fresh record high as its net interest margin climbed 15 basis points and its income rose at more than twice the rate of expenses.

ASB's net profit after tax for the six months to December 31, 2014 rose $28 million, or 6.7%, to $444 million from the previous record high, the $416 million ASB generated in the six months to December 31, 2013.

The net interest margin rise to 2.50% from 2.35% stemmed from favourable funding conditions which offset continuing pressure on lending margins, ASB CEO Barbara Chapman said. Parent Commonwealth Bank of Australia (CBA) also cited retail deposit margin improvement.

ASB also reported a 19% return on ordinary shareholder's equity, up from 17.5%, and a 1.3% return on assets, up from 1.2%.

Chunky increase in dividends

ASB paid $565 million worth of dividends in the December half-year, up from just $50 million in the same period of the previous year. And ASB will pay another $400 million worth of dividends on March 26. In its last financial year, to June 30, 2014, ASB paid dividends totaling $400 million meaning it's on track to more than double dividends this year. The big four Australian owned banks have all been increasing their dividend payments, almost trebling them last year, as their parents come under pressure to hold more capital.

Meanwhile, ASB's net interest income rose $79 million, or 10.2%, to $850 million, and its total operating income gained $68 million, or 6.9%, to $1.052 billion. Total operating expenses were up $11 million, or 2.8%, to $398 million, with the bank's cost to income ratio falling 150 basis points to 37.8%.

However, the bank's loan impairments rose $16 million, or 76.2%, to $37 million, which Chapman attributed to "the non-recurrence of a sharp decrease in arrears over the previous period with arrears having since stabilised."

"More broadly, favourable economic conditions, including relatively low interest rates and high employment continue to contribute favourably to impairments," Chapman added.

Home loan growth 1%, business & rural loans up 7%

Customer deposits were up $2.45 billion, or 5.5% in the six months to December 31 reaching $46.75 billion. Net loans rose $1.98 billion, or 3.3%, to $62.6 billion. Total assets increased $2.17 billion, or 3.2% to $70.5 billion, with total liabilities up $2.3 billion, or 3.7%, to $65.5 billion.

Parent CBA said ASB's home loan book grew 1% in the December half from June, and business and rural lending rose 7%. ASB's operating expenses rose 4% in the December half from June, due to "inflation related" staff expense increases, plus investment in frontline capability and technology.

Chapman cited 16% income growth in funds management and said the results were the product of strong underlying growth across ASB's operating divisions.

"The story behind this result is around diversified growth across the business against the background of a very competitive pricing environment, particularly in the home loan market," said Chapman.

CBA put ASB's funds under administration (FUA) at $14.2 billion at December 31, up $1.2 billion, or 9.4%, from June 30. Funds management income to average FUA was put at 0.54% for the December half, down from 0.57% in the June half.

Meanwhile insurer Sovereign, ASB's sister company, posted  a $17 million, or 42.5%, increase in December half profit versus the December half of 2013 to $57 million. CBA attributed the rise to strong claims experience and inforce growth.

CBA's Narev says weak confidence a significant economic threat

CBA posted an 8% rise in interim cash profit to a record high A$4.623 billion, and will pay a fully franked interim dividend of A$1.98 per share, also an increase of 8%. However, other key measures were inferior to ASB's with CBA's cost to income ratio down 70 basis points to 42.2%, its net interest margin down 2 basis points to 2.12%, and its cash return on equity down 10 basis points to 18.6%.

The New Zealander at CBA's helm, Ian Narev, also struck a cautious note about the Australian economy.

"The Australian economy has many of the foundations necessary to make a successful transition from its dependence on resource investment. Population growth, a vibrant construction sector, some signs of increased business investment, greater trade access supported by a lower Australian dollar and a strong banking sector are all contributing to an economy that remains the envy of most developed markets. However, the volatility of the global economy continues to undermine confidence, particularly the impact of lower commodity prices on national revenue,” said Narev.

“Weak confidence is a significant economic threat. Businesses need the certainty to invest to create jobs, and households need a greater feeling of security. That requires implementation of a coherent long term plan that clearly addresses target government debt levels and timeframes, infrastructure priorities, foreign investment, business competitiveness policies and, above all, job creation."

Here's ASB's full press release.

See CBA's full release here, its analysts' presentation here and its press release here.

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