The Bank of New Zealand (BNZ) has posted a 17% rise in annual cash earnings, which its parent National Australia Bank (NAB) attributes to the switch by home loan borrowers to floating, or variable, rate mortgages from fixed-term ones, "repricing" of loans to reflect market conditions and a drop in bad and doubtful debts.
BNZ's cash earnings for the year to September 30 rose to NZ$612 million from NZ$524 million the previous year. Its gross loans rose just 2% to NZ$55.9 billion and total assets rose 1% to NZ$58.1 billion. Retail deposits increased 10% to NZ$31.1 billion.
NAB said BNZ's share of the home loan market rose to 16.2% from 16% at March this year and 15.8% at September last year.
BNZ's charge for bad and doubtful debts dropped 19% to NZ$151 million.
The country's big banks are all benefiting from home loan customers switching to floating mortgages from fixed-term ones. As recently as January 2008, 87% of home loans by value were on fixed-term rates. But the latest Reserve Bank figures show a big swing to floating rates, where the banks have been charging lower interest rates, with 56% of home loans by value now floating.
Banks do better out of floating, or variable, mortgages because the margin between the variable rate and short end of the yield curve, such as three month bank bills, is higher than the margin between swap rates and fixed rate mortgages. See more here.
Meanwhile, BNZ's net interest income rose 7% to NZ$1.3 billion, its other operating income rose 2% to NZ$451 million leaving net operating income up 6% to NZ$1.77 billion. The bank's operating expenses rose 2% to NZ$747 million.
2 Comments
"net operating income up 6% to NZ$1.77 billion."
With 16% of the home loan market (and assuming a similar proportion in the rest of the banking market) that would indicate a total of cost $6,250,000,000 to our Kiwi households and businesses for our wonderful banking sector. Thats about half what we spend for our education or health budgets. Good value?
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