ASB profit hits $859 mln as income and lending grow

By Gareth Vaughan

ASB has posted a 7% rise in annual profit, recording its fifth consecutive record high, as income and lending growth offset a rise in impairment losses and expenses.

ASB's net profit after tax for the year to June 30 rose $53 million to $859 million from $806 million the previous year.

The bank's net interest earnings rose 9% to $1.7 billion and total operating income increased 6% to $2.09 billion.

Impairment losses on loans jumped 59%, albeit off a low base, to $89 million. CEO Barbara Chapman attributed this to increases across all lending portfolios. Total operating expenses were up 5% to $805 million, which was attributed to "inflationary-related" salary increases and continued investment in frontline capability.

"This was an across the board performance with all areas of the business contributing to the result," Chapman said.

Dividends almost treble

ASB's annual ordinary dividends almost trebled to $1.14 billion from $400 million in the June 2014 year and were just $130 million shy of the level paid in the previous four years combined. The annual dividends were equivalent to 135% of ASB's $846 million cash profit.

The big dividend increase comes at a time when ASB's parent Commonwealth Bank of Australia (CBA) has been under pressure to increase its regulatory capital. However, Chapman told interest.co.nz the dividend payout level was based on ASB's capital needs, or lack of them, rather than CBA's.

"We repatriate dividends to the shareholder depending on the capital needs of this business. Over the past six years on average we've retained 55% of our earnings and repatriated to the shareholder 45%. In two of those years we haven't repatriated anything. So it does go up and down," said Chapman.

During the year to June 30 ASB's retained earnings dropped by $304 million to $2.006 billion.

Business & rural lending up 14%, home loans up 5%

CBA said ASB's home loan book grew 5% over the June year to $43.7 billion, and business and rural lending surged 14% to $20 billion.

Year-on-year ASB's net interest margin rose 6 basis points to 2.44%, which the bank attributed to favourable funding conditions (this includes lower deposit rates for savers). And the bank's expense to income ratio fell 30 basis points to 38.6%, due to productivity improvements and cost cutting.

Total loans increased $4.7 billion, or 8%, over the year to $65.4 billion. Total deposits grew faster, by $5.8 billion, or 13%, to $50.1 billion.

ASB's return on ordinary shareholder's equity rose 140 basis points to 18.8%, and its return on total average assets was unchanged at 1.2%.

The bank's common equity tier one capital, as a percentage of total risk-weighted assets dropped 180 basis points to 8.8% in the year to June. The minimum required is 7%. 

Second-half slows with increase in rural loan provisions

Despite the strong annual results, things slowed down in the second-half for ASB. Cash net profit slipped 3% from the second-half of the bank's 2014 financial year to $417 million. (Annual cash profit was up 9% to $846 million). The drop was attributed to rising impairments and operating expenses.

And the second-half figures show home loan growth of 4% - in line with system. However,  business and rural lending growth still grew above system at 7%, and customer deposits increased 9%.

The second-half also delivered a lower net interest margin, a 50 basis points increase in expense to income ratio to 39.2%, and a $15 million rise in loan impairments due to an increase in rural lending provisioning. Impairment expense annualised as a percentage of average gross loans rose 5 basis points annually to 0.14%, and reached 0.16% in the second-half.

We previously reported the detail of a court case, between ASB and IRD, involving ASB's so-called Yen Transaction and $153 million of potential tax plus interest and penalties here.  ASB and IRD settled shortly before a trial was due to start in the High Court in June. The size of the settlement hasn't been disclosed with ASB saying it made adequate provision in previous years.

Meanwhile, CBA's New Zealand insurer Sovereign, recorded a 19% rise in annual cash net profit after tax to $123 million.

CBA seeks A$5 billion

CBA itself reported a 5% rise in annual net profit after tax to A$9.063 billion. It also unveiled an A$5 billion pro rata renounceable entitlement offer, which will see shareholders offered one new share for every 23 held, as the bank moves to bolster its capital position. CBA says the capital infusion will give it a pro forma 14.3% common equity tier one capital ratio on an internationally comparable basis, and 10.4% on an Australian Prudential Regulation Authority basis.

CBA's results also show a 5% rise in total annual dividends to A$4.20 per share, equivalent to 75.1% of cash net profit after tax.

CBA's return on equity, net interest margin and cost to income ratio were all worse than ASB's at 18.2%, 2.09%, and 42.8%, respectively.

CBA's release included the chart below covering shares of key NZ markets.

Here's ASB's press release and here's parent CBA's press release.

CBA's full release is here.

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10 Comments

Why the massive profit? Is it due to better value to customers, better service, increased efficiencies, happy staff and supporting communities as re-investing in NZ?
Or just increased margins and cutting costs? Woop woop for ASB

Well over inflation and GDP all the time... and to big to fail. What a business.

There can't be a better business than banking where you can create money out of thin air and then charge interest on it. If an individual did this it would be fraud,a criminal activity. But if you get a banking license from the RBNZ it's perfectly fine.

I still don't get how can we have a system where private businesses have the privilege to create money. The ONLY official currency allowed..

Why not to legislate and increase the Cash Reserve Ratio to 100%?
Do they want to lend money and make money out of interests? Very well, but lend real money.

Anyway.. let's keep it in mind when banks start suffering due to bank loans and ask to be bailed out at taxpayers' expenses.

Because there's no way on earth you could trust government or "public servants" to do it - certainly not without a political agenda to corrupt things. Remember most government people don't have a clue about how an economy or business works - they just tax and levy what they want. You want to change your house, you must pay them. Need that birth certificate for a passport? pay twice. No options.
Money running short? tell the banks they legal must own 10% more government bonds - problem solved.

Just look at all the free hours teachers are expected to put in... yet in private industry such behaviour would have massive fines for the employers. Standard practice in teaching...as is the vertical shaming (and career damage) if they don't comply.

Really good to see ASB making a profit. Well done for being good stewards of money.

It shows the New Zealand economy is doing OK. And of course, if the bank's making a profit then all the depositors' and borrowers' monies are safe.

I cannot for the life of me understand why people moan when the banks make profits.

they are hitting up us shareholders for a 1 for 23 rights issue to hold more capital against their loan book.
I would be more happier if they improved the margin instead but oh well does not matter still getting a good return from them

They are making profits by gambling on house price increases with depositors taking on most of the risk; which is high by definition(high return = high risk; but not much risk for CBA /ASB CEOs)

they're not the ones gambling, we are. that's the problem - they're like the clans in Dune. Like them or not, they're the only place you can get important things from. They can pass on their insurance cost for each persons risk (do p2p do that?) onto us the customer. bad month? a extra points on the next posted rate.

because they produce little or no actual value add, and do add considerable, risk free to them, cost