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Bank of New Zealand looks offshore for core capital

Wednesday 27th October 2010

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Bank of New Zealand, the local unit of National Australia Bank, is likely to look to European investors for its first international ‘covered’ bond issue, plans for which were included in the bank’s profit announcement for the year to Sept. 30.  

Further details on the issue may emerge in coming days, but BNZ’s New Zealand chief executive Andrew Thorburn said European markets were already familiar with covered bonds, which are structured with additional security allowing them to carry an AAA credit rating and reduce interest costs for the borrower.

The bank is focusing on strengthening its balance sheet as new capital adequacy ratios come into force in the global financial sector response to the 2008/09 financial crisis.

BNZ’s current core funding ratio sits at around 72%, well above the required 65%, said Thorburn.  However, that ratio requirement rises to 70% in 2012, and the bank will seek a buffer of at least two to three percentage points above official requirements.

After a tough year and flat post-tax cash earnings on its New Zealand operations of $524 million in the year just gone, Thorburn said there were opportunities for BNZ to grow its share of existing markets, but indicated the bank would be considering managed funds and wealth management products again over the medium term.

BNZ might have expected to inherit AXA’s New Zealand managed funds business, had National Australia Bank – BNZ’s parent – not been blocked by Australian regulators from bidding on the AXA Asia-Pacific business that AMP is now front-runner to buy.

“Over time, New Zealand does need to increase its rate of savings, and wealth products and advice will be part of that,” Thorburn said. “We have a good insurance business and a good private banking business.  I think that (managed funds) is an opportunity for us to sensibly grow.”

However, there was no need for “anything big” in the short term.

Thorburn gave no forecast for BNZ’s profitability in the current financial year, but expects 2011 will be another challenging period, with slow growth in household credit and a continued decline in demand for lending from businesses.

“We’ve done well with the environment we’ve had,” he told BusinessDesk. “I’m confident we will have another sound year.”

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