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Margins Under Intsense Downward Pressure, Says ASB Chairman

Contributor:
Fuseworks Media
Fuseworks Media

Wellington, Feb 11 NZPA - Robust competition is placing intense downward pressure on margins, ASB Bank chairman Gary Judd QC says.

The bank's margin declined to 1.5 percent in December compared to 1.8 percent a year earlier.

"These record low margins are an indication of the challenging economic environment for New Zealand banks, which has seen higher wholesale funding costs and ongoing demand for competitively priced retail deposits," Mr Judd said today.

With industry margins under pressure and New Zealanders' demand for new lending stalling in the later months of the calendar year, ASB's operating result for the six months to the end of December was boosted by strong Treasury trading income.

That arose from the prudent management of short dated interest rate and foreign exchange risk exposures, he said.

For the half-year the bank reported an after tax operating profit of $238 million, 10.9 percent down on the same period in 2007 after including $41m of accounting losses.

Underlying businesses continued to perform well, with total assets increasing by 16.3 percent on the December 2007 half-year to $65.3 billion and lending balances growing by 8.6 percent to $52.5 billion, Mr Judd said.

Home loan balances were up 6.3 percent over the prior comparative year, with ASB marginally increasing its market share to 23.4 percent.

Asset growth was offset by increased loan impairment charges across all asset classes.

"This recognises the very real effects, both for local business and New Zealanders, of the deteriorating economy we are all experiencing," he said.

Despite that, the overall quality of ASB's loan book was high, with total provisions of $157m representing 0.24 percent of total assets, compared to 0.18 percent at the end of June.

ASB was one of only a small number of banking groups in the world to maintain an AA Stable credit rating or better issued by independent rating agency Standard & Poor's, Mr Judd said.

"This rating indicates a very strong capability to meet our financial commitments."

Against that background, ASB's total deposits increased by 12.9 percent to $57.1b.

ASB's parent, Commonwealth Bank of Australia (CBA), Australia's third-biggest lender, today warned investors it might not be able to maintain the current level of dividend as it posted a 16 percent fall in half-year profit.

CBA reported a cash profit of $A2.01b ($NZ2.6b), dented by a global crisis that has slowed credit growth and pushed up bad debts. It also maintained its interim dividend unchanged, the first time in more than a decade that it did not raise the interim payout to shareholders.

Chairman John Schubert added in a statement, "in the current uncertain economic environment we cannot guarantee to maintain future dividends at past levels".

As already forecast, CBA's impairment charges soared to $A1.6b from $A333m.

The bank said there was no evidence of a broad deterioration in credit quality, although its commercial customers were being affected by the economic downturn. Arrears in consumer lending had begun to increase, while still remaining low.

NZPA WGT Reuters mjd nb

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