ASB's parent, Commonwealth Bank of Australia (CBA), says margins improved at its New Zealand subsidiary in the three months to September thanks to ASB increasing interest rates it charges customers'.
In CBA's September quarter trading update out today, the bank said the New Zealand economy was continuing to show slow signs of improvement.
"ASB has maintained its strong relative market positioning in both home lending and deposits. Margins improved from asset repricing despite continued strong competition for retail deposits," CBA said.
It also said consumer arrears in New Zealand were stable.
ASB, whose CEO of less than two years Charles Pink recently quit, is looking to boost its interest margins which have been significantly below those of its main rivals ANZ, BNZ and Westpac.KPMG's June quarter Financial Institutions Performance Survey showed even after a 15 basis points rise, ASB's margins at June 30 were just 1.67%, compared to ANZ's 2.25%, Westpac's 2.24% and BNZ's 2.12%.
In a move that could help its margins, ASB recently launched a new push in institutional banking, dropping the use of the CBA name to operate under the ASB Institutional brand as it strives to lift its 5-10% share of the lucrative institutional banking market.
CBA's reference to continued strong competition for retail deposits in New Zealand comes with the major banks aggressively chasing retail term deposit money. This follows the Reserve Bank’s introduction of the core funding ratio (CFR) on April 1. The CFR sets out that banks must source at least 65% of their funding from retail deposits and wholesale sources with durations 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.
In the June quarter, ASB grew term deposits by about NZ$400 million, more than any of its rivals.
Meanwhile, CBA said its September quarter unaudited cash earnings rose to A$1.6 billion from A$1.4 billion in the same period of 2009. CEO Ralph Norris, a New Zealander and former CEO of ASB, has been under fire in Australia since CBA hiked its floating mortgage rate by 45 basis points on November 2 after a Reserve Bank of Australia cash rate increase of just 25 basis points.
Norris said retail banking margins remained under pressure with both deposit and wholesale funding costs at "elevated levels."
"The retail bank margin for the quarter was 215 basis points, a decline of 15% since the start of the Global Financial Crisis," Norris said.
" As a result, the decision was taken to increase the home loan standard variable rate by 45 basis points, effective November 5."
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