Falling impairment losses on loans and a rise in fair value gains on derivatives have helped ASB post a second consecutive record annual profit despite just a 1.2% rise in lending.
The bank, a subsidiary of Commonwealth Bank of Australia (CBA), said today net profit after tax for the year to June 30 rose NZ$117 million, or 21%, to NZ$685 million.
ASB said a major contributor to the profit rise was a NZ$51 million increase in after tax fair value gains on "other derivatives" such as interest rate swap contracts and foreign currency forward contracts. If this is excluded, net profit after tax would have risen 11% to NZ$658 million, ASB said.
The bank also said impairment losses on loans were NZ$47 million, down 35% year-on-year from NZ$72 million. CEO Barbara Chapman said this reflected the non‐recurrence of its Christchurch earthquake provision with arrears and hardship levels in Christchurch improving.
Customer deposits rose NZ$2.58 billion, or 7%, to NZ$38.975 billion, easily outstripping ASB's NZ$651 million, or 1.2%, rise in lending to NZ$53.002 billion. Total assets rose NZ$487 million to NZ$63.537 billion.
Although net interest margins rose 15 basis points year-on-year to 2.16%, they're down 3 basis points from the 2.19% ASB reported for its half-year results at December 31.
Benefit from borrowers shifting to floating rate mortgages 'subsides'
Chapman said ASB had produced a "solid" annual result despite the head winds of global economic turbulence and subdued customer borrowing. The profit rise had also been bolstered by an increase in operating income (up NZ$118 million, or 7%, to NZ$1.731 billion), partly through customers shifting from fixed to floating rate home loans, although this trend has subsided in recent months as tipped by interest.co.nz yesterday.
As of June 30, 63% of ASB's home loans by value were floating, - unchanged from December 31 last year, but up from 59% a year earlier. Chapman said that although there had been a move from customers back to fixed mortgages in June, this has slowed since.
ASB's total operating expenses as a percentage of total operating income fell to 42.6% from 45.1%.
Meanwhile, Chapman said ASB's business lending had seen 6% annual growth.
“We have experienced a marked increase in business activity, particularly over the second half of the financial year. ASB saw strong performance in its rural lending business over the year with the Bank securing its largest ever share of ‘1 June’ farm settlements. As a result, the Bank saw an increase in its total share of the rural lending market in the month of June 2012," said Chapman.
"The 2012 financial year was also a record year for ASB in terms of the performance of its insurance sales channel which has established the Bank as the largest bancassurance provider in the New Zealand market. ASB’s branded home loan lending grew above market share reflecting the strength of ASB branded products."
Customer deposit growth strong
Nonetheless, ASB’s total lending book remains flat with Chapman attributing this to a decline in its third party distribution book.
She said the strong growth of customer deposits has reduced ASB's reliance on wholesale funding markets.
“Customer deposits balances have grown by 7% outpacing growth in lending, as ASB continues to focus on attracting deposits in a competitive market. ASB now has a 22.5% share of the total customer deposits market.”
Although "disciplined" cost management remained a key priority (total operating expenses rose NZ$10 million to NZ$737 million), Chapman said the bank continues to implement initiatives to benefit customers.
“Our commitment to leading the market in technology innovation means that we are well placed to capitalise on the phenomenal growth in mobile and online banking. We will continue to make the right strategic investment decisions to ensure we are responding to our customers’ needs and engaging with them how, where and when they want, whether through our online and mobile channels or through our people."
Looking ahead, she said ongoing global volatility creates uncertainty for the local economy.
"In addition, funding costs remain under pressure. However, despite this uncertainty, New Zealand’s situation continues to gradually improve, and we anticipate increased momentum for the domestic economy," Chapman said.
Big dividend from CBA
In Australia CBA also reported record annual profit, with a 4% rise to A$7.1 billion (about NZ$9.3 billion). Its return on equity fell 90 basis points to 18.6% but the group will pay a final dividend of A$1.97 per share, equivalent to 89% of second-half cash profit and an increase of 5%. See CBA's press release here, its analysts' presentation here and its full, detailed announcement here. ASB paid CBA ordinary dividends worth NZ$500 million in the nine months to March 31 versus just NZ$80 million in the same period of the previous year.
CBA's total annual dividends, including its A$1.37 per share interim dividend, rose 4% to A$3.34 per share. That's equivalent to 75% of annual profit.
(Updates add detail about CBA & on fixed v floating mortgages).