Wellington, Feb 10 NZPA - ASB's settlement with Inland Revenue has seen its shrinking profit for the last half of 2009 turn into a $10 million loss, the bank said today.

The bank delivered what it called a "solid" underlying after tax operating profit of $199m for the second six months of last year, which was 16.4 percent down on the $238m for the same period in 2008.

However, in December, ASB, along with ANZ National, BNZ and Westpac settled their tax dispute with Inland Revenue over structured finance transactions, which saw ASB billed $264m in tax and interest charges.

Of that, $209m applied to the second half of the year, resulting in an overall net loss of $10m after tax for the half-year, said chairman Gary Judd, QC.

The higher cost of funding intensified downward pressure on margins and ASB's net interest margin on interest bearing assets decreased from 1.64 percent in June 2009 to 1.63 percent in December.

There was a marked fall-off in demand for borrowing during the year and the bank's total assets decreased marginally by 1.1 percent to $64.6 billion.

Over the same period, the bank's lending balances grew by 3 percent to $54.1b.

During the year to December 2009, home loan balances increased by 3.2 percent to $38.3b, with market share remaining steady at 23.3 percent, while rural, commercial and corporate lending was up 2.5 percent to $13.5b.

Total deposits increased to $57.6b, up almost 1 percent since December 2008.

ASB saw a 2.9 percent growth in retail deposits to $31b through retaining and attracting new funding, with market share remaining steady at 21.4 percent.

The increase in ASB's pool of retail deposits resulted in a slightly increased fee of $18.5m being paid to the Government for the Retail Deposit Guarantee Scheme.

The bank lifted its loan impairment charge by $60m to $127m compared to December last year. Total provisions on the balance sheet now stand at $340m, down from $157m in December 2008. Provisions still represent only 0.53 percent of total assets, up from 0.40 percent in June 2009.

For the six-month period ordinary dividends totalling $70m were paid to ASB's New Zealand holding company, although no dividends were paid to ASB's Australian parent company, the Commonwealth Bank of Australia.

The ASB's job creation fund, which aims to provide lending to New Zealand businesses to create new employment opportunities or prevent people from losing their jobs, had approved loans worth $72.4m since being set up in February.

Along with $30m of associated lending, the fund had either saved or created almost 900 jobs, the bank said.

"We have kept jobs at home in New Zealand. No jobs have been sent off-shore. We are absolutely committed to maintaining this no-offshoring policy," Mr Judd said.

In December, with the emerging recovery in the economy, the bank lifted its salary freeze for its employees earning over $50,000.