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The Co-operative Bank records solid profit growth as impairments drop, aims to double business in 5 years

The Co-operative Bank records solid profit growth as impairments drop, aims to double business in 5 years

By Gareth Vaughan

The Co-operative Bank has posted a 24% rise in annual net profit after tax, and its CEO says the bank aims to double the size of its business every five years or so.

Co-operative Bank's net profit after tax for the year to March 31 rose $1.4 million, or 24%, to $7.1 million from $5.76 million the previous year. The bank will pay out $1.3 million to customer-shareholders in rebates. See more on the rebates here.

The profit rise came as impairments fell 37%, and income rose 3.2%, which was ahead of a 1.2% increase in expenses. Some 10,000 new shareholders joined during the March year lifting total shareholders above 125,000.

CEO Bruce McLachlan told in a Double Shot interview two factors had underpinned the profit rise.

"We've actually been growing, and growing ahead of the market. And the second thing is, like everyone in the market, we've been enjoying the relatively buoyant economic times and low unemployment which feeds into very low bad debts. So we're enjoying both growth and a good economic environment," McLachlan said.

Formerly PSIS, the Co-operative Bank received its banking registration from the Reserve Bank in 2011. McLachlan says it's aiming to double the size of its business about every five years.

"When we stand back and look at our business, the size of the business, the size of the market we're in, and our unique position, we say 'actually when you stand back from it, growing our business, doubling it in size in the next five years makes sense, and it probably makes sense for the next five years as well'," said McLachlan.

"How are we doing it? We're very clear about the market we're in. We're in retail banking only. Mums and dads providing everyday banking services across the whole of New Zealand, and we're leveraging our unique position which is our co-operative and bringing that to life for New Zealanders. That is in effect what we're doing." Here's a video interview with McLachlan from 2012 where he talks about wanting Co-op Bank to grow as big as Kiwibank.

McLachlan also said the Co-operative Bank is spending about $2 million as it works with a Wellington IT company, that it challenged to "reinvent the bank." A mobile app will be launched in about a month, and McLachlan's promising "one of New Zealand's best online and mobile banking experiences" with be launched this year and next.

Mortgage and deposits grow in March quarter

Residential mortgages rose $36 million, or 2.9%, in the three months to March 31 to $1.286 billion. High loan-to-value ratio residential mortgage lending stood at $189.4 million, or 14.72%, of the bank's home loan portfolio. That's down from $228.5 million, or 19.52% a year earlier.

Total loans and advances rose $41.6 million, or 3%, in the March quarter to $1.408 billion.

In the March quarter deposits rose $5.5 million to $1.4 billion. The bank also has $25 million of wholesale funding from Westpac, up from $16.9 million year-on-year, and $30.2 billion from institutional investors, down from $43.96 million.

Through the March year McLachlan highlighted new branches in Auckland and Christchurch, the relocation of branches in Tauranga, Hastings, Wanganui and Dunedin, growing overall customer numbers and lending, and a "strong increase" in brand awareness.

"Low equity lending restrictions introduced in the past year have had no impact on the Bank’s momentum, with lending growth at an annualised 14% increase in the second half of the year and 9.7% for the whole year. This year the Co-operative Bank will pay $1.3 million in rebates back to its customers compared to $1 million last year," said McLachlan. "Deposits grew 7.9% compared to a year earlier to $1.4 billion."

The Co-operative Bank replaced Deloitte with KPMG as its auditor and saw annual combined fees for auditing, assurance services and non-audit advisory services cut by $104,000 to $255,000.

The Co-operative Bank Year to March 31 Change year-on-year
Net interest income $42.9m Up $3.3m, or 8.2%
Net operating income $62.2m Up $1.9m, or 3.2%
Total impairment losses $1.5m Down $866k, or 37%
Total operating expenses $50.5m Up $575k, or 1.2%
Net profit after tax $7.1m Up $1.4m, or 24%
Total assets $1.624b Up $102.1m, or 6.7%
Total individually impaired assets $2.5m Down $2.4m, or 48.7%
Total liabilities $1.481b Up $93.6m, or 6.7%
Total members' reserves $143.25m Up $8.5m, or 6.3%


Co-op's regulatory capital ratios At March 31 Minimum requirement
Common Equity Tier 1 Capital Ratio 16.6% 4.5%
Tier 1 Capital Ratio 16.6% 6%
Total Capital Ratio 16.8% 8%
Buffer Ratio 8.8% 2.5%

(Update adds comments from interview with Bruce McLachlan, video).

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I will be watching them with interest re: proffit pay outs to share holders. As looking at their home loan rates they are very competitive.