ASB margins squeezed by competition for deposits

Wednesday 12th May 2010

ASB Holdings, the New Zealand subsidiary of Commonwealth Bank of Australia, had its margins squeezed by intense competition for deposits as local lenders vie for domestic cash in the fall-out of the global financial crisis.

The economy was showing signs of improvement, and its subsidiary was “maintaining its strong relative market positioning in both home lending and deposits,” the bank’s parent said in a statement to the ASX. CBA boosted its cash earnings to A$1.5 billion in the three months ended March 31, compared to A$1.15 billion a year ago.

The bank cut its impairment expense to A$500 million in the quarter compared to A$640 million in 2009 with improvements in its institutional and small- and medium sized enterprise segments. Its liquid assets rose to A$89 billion from A$87 billion a year ago.

“Credit growth remains muted and margins continue to come under pressure from higher average funding costs and strong price competition,” said Ralph Norris, CBA chief executive.

“Whilst we have clearly passed the peak in the bad debt cycle, key credit quality indicators remain at elevated levels and we continue to expect gradual, rather than dramatic improvement.”

Profits at New Zealand’s banks plummeted 90% last year as lenders took on bigger provisions for bad loans and stumped up more than $2 billion in taxes owed on structured finance transactions. All financiers’ margins had been squeezed as the central bank introduced a requirement for 65% of all funding to come from domestic or short-term sources.

CBA said its Australian retail arm performed strongly with retail customer numbers topping 1 million in the quarter.

The wealth management and insurance arms reported declines in funds under administration and funds under management, though it boosted its inforce premiums 3.1% to A$1.5 billion.

Businesswire.co.nz

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