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TSB boss Murphy not complaining about competition for retail deposit money

TSB boss Murphy not complaining about competition for retail deposit money

TSB Bank’s June quarter profit has fallen 42% due to lower income from derivatives and a one-off tax hit, but the bank’s boss believes it’s holding its own in the tough battle for retail funding.

TSB’s General Disclosure Statement for the three months to June shows unaudited net profit after tax of NZ$8.69 million, down from NZ$14.87 million in the same period of last year.

The fall came after a NZ$3.9 million deferred tax adjustment stemming from the Government’s removal of depreciation on buildings and a NZ$2.26 million fall in income from derivative financial instruments to NZ$3.57 million. Managing director Kevin Murphy told TSB had decided to take the full hit from the new tax legislation in one go, although it was possible there could be a further adjustment given the legislation, especially around building fit out, wasn’t yet absolutely clear.

Meanwhile, TSB’s position on derivatives such as hedges and interest rate contracts, had enabled it to book an “extraordinary” level of income while interest rates were low. Murphy said some of these instruments had now matured, meaning gains achieved in the last financial year won’t be matched this financial year.

TSB’s interest income rose 5% to NZ$62.57 million and operating expenses fell 7% to NZ$9.1 million. Pre-tax profit fell to NZ$18.1 million from NZ$21.25 million.

Overall deposits from customers rose NZ$25 million from March 31 to NZ$4.048 billion at June 30 with retail term deposits up NZ$70.25 million to NZ$1.948 billion. However, both interest bearing call deposits and non-interest bearing call deposits were down. June quarter retail term deposit growth was higher than the NZ$27.6 million growth recorded in the June quarter last year.

TSB sources 100% of its funding from the retail market and Murphy said there were currently no plans to change this policy. Murphy said despite greater competition for retail deposits from the big four Australian owned banks – ANZ, ASB, BNZ and Westpac, TSB was “more than” holding its own.

Competition for retail deposits has ramped up since the Reserve Bank introduced its core funding ratio (CFR) on April 1. The CFR means the banks must source at least 65% of all their funding from retail deposits or bonds with terms of at least one year. The central bank wants to increase the CFR to 75% by mid-2012 to offset New Zealand banks previous reliance on international wholesale, or 'hot' money, markets. See all term deposit rates here.

Kiwibank CEO Sam Knowles said last week that the introduction of the CFR had “changed the balance” for New Zealand owned financial institutions with Australian owned rivals coming on shore to take "our money."

'No complaints'

But Murphy isn't complaining.

“It’s a competitive world and if you want to play in that world you have to be able to find ways to be competitive,” said Murphy.

“There are lots of ways we can do that. Being 100% New Zealand owned, being around since 1850, having a fantastic brand, and we’re continually performing well in customer satisfaction surveys,” he added. “There are all those sorts of things that will encourage us that there’s always room for us to make our mark out there. We’re not afraid of competition.”

Murphy did acknowledge, however, that at some point in time TSB might look at alternative funding sources.

“But there’s still a lot of opportunities for us in the retail sector to grow our market share.”

Last month he told that TSB had no plans to join New Zealand owned rivals such as SBS Bank or Marac Finance in looking for greater scale through mergers. 

TSB’s lending during the quarter rose in each of the residential mortgages, commercial and farming categories. Its mortgage book rose NZ$56.6 million in the three months to June versus NZ$44 million growth in the same quarter last year, to NZ$2.24 billion. The bank’s total loans and advances to customers rose 2.8% to NZ$2.47 billion.

Total assets were slightly higher at NZ$4.41 billion, up from NZ$4.40 billion at March 31.

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Anon, at the time the latest GDS was put together TSB hadn't applied to be covered by the extended Crown retail deposit guarantee scheme.

Kiwibank won't be applying and nor will ANZ or BNZ. The other major banks are yet to give a definitive answer but aren't expected to apply.