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BNZ 1H earnings flat as revenue gains offset by higher charges for bad debts

Thursday 9th May 2013

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Bank of New Zealand, the local unit of National Australia Bank, lifted first-half cash earnings 0.5 percent as revenue gains from housing and business lending were offset by a bigger charge on bad debts.

Cash earnings from the New Zealand banking operations, which strip out wholesale operations, rose to $387 million in the six months ended March 31 from $385 million in the same period a year earlier, the Wellington-based lender said in a statement. BNZ banking group interest income gained 4.1 percent to $778 million, while the charge on impaired assets grew to $73 million from $30 million a year earlier.

The increase in revenue came from growth in the bank's lending volumes, while the impairment charge was bigger due to "higher specific provision charges on business exposures," according to the NAB commentary on the NZ unit.

The local lender lifted gross loans 3.3 percent to $59.4 billion as at March 31 from a year earlier, and customer deposits climbed almost 11 percent to $37.1 billion. The New Zealand unit lifted its market share of agribusiness lending and retail deposits, while losing ground in home loans and cards from a year ago.

"Actively growing out deposit base, diversifying our presence in wholesale funding markets and holding prudent levels of liquidity represent a significant contribution to maintaining BNZ's rock-solid balance sheet," chief executive Andrew Thorburn said. "BNZ's ongoing support of New Zealand business is driving increased lending growth to business, particularly in the country's important agriculture sector."

The result comes a day after the Reserve Bank raised concerns about New Zealand's bubbling property market and the risk it poses to the financial system if it gets too far out of check. The central bank yesterday announced plans to increase the amount of capital local banks will have to hold to back mortgage lending, as lenders increase their amount of low-equity home loans.

The Australian parent, NAB, boosted cash earnings 3.1 percent to A$$2.92 billion, of which BNZ contributed about 11 percent. NAB's revenue fell 0.9 percent to A$8.88 billion, while net profit climbed 23 percent to A$2.52 billion. The bank will pay an interim dividend of 93 Australian cents per share, 3 cents higher than a year ago.

BNZ's net interest margin of 2.4 percent was 1 basis point lower than a year ago, due to competition from deposits and customers' growing preference for fixed rate mortgages over floating rates, and was partially offset by cheap wholesale funding costs.

"Active margin management continues to be a focus within the business," NAB said.

The Australian parent's shares gained 1.3 percent to A$33.37 yesterday, and have climbed 32 percent this year.

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