ASB profit shrinks 18%

Wednesday 12th August 2009

ASB Bank, the bank owned by Commonwealth Bank of Australia, reported an 18% decline in full-year profit as mounting loan impairment charges dragged down the bottom line, amid the deepest recession in New Zealand for 30 years.

Net income fell to $425 million for the year ended June 30, from $515 million a year earlier, the bank said in a statement. Impairment costs jumped $198 million to $238 million, with total provisions on the balance sheet now at $261 million, from $109 million a year earlier.

"Loan impairment charges have adversely affected profits across the industry this year," chairman Gary Judd said in a statement. "While this is a significant increase compared to recent years, provisions still represent only 0.4% of total assets" compared to 0.18% last year, he said.

The trans-Tasman banking sector has been viewed as one of the most stable in the world with the big four Australian banks avoiding exposure to the sub-prime crisis in the US and maintaining relatively strong balance sheets.

All four banks rated in the top-ten safest banks in the world, according to Standard & Poor's earlier this year.

Judd went to some lengths to point out that despite the profit appearing to be "large", ASB's return on assets and on equity, at 0.68% and 14.9% respectively, was "low to average compared to other major New Zealand companies."

The bank's net interest margin fell 21 basis points to 1.57% as rising costs of wholesale funding and strong competition in the term deposit market created "intense downward pressure" for the banks.

A Parliamentary select committee accused banks of profiteering in June after Reserve Bank Governor Alan Bollard raised concerns the banks weren't doing enough to pass on cuts to the official cash rate in floating mortgage rates.

ASB's bottom line was also dragged down by "customers exiting fixed rate mortgages as interest rates dropped sharply," according to CBA's annual report.

The bank boosted total deposits 5.1% to $56.7 billion, with 8% growth among retail depositors. It boosted total assets 9.9% to $65.2 billion as rural, commercial and corporate lending rose 7.7% to $13.5 billion.

Neither ASB nor its parent made mention of increased provisions for the IRD tax case, where ASB is challenging tax assessments of around $220 million.

Shares in CBA gained 1.3% to A$44.52 in trading on the Australian stock exchange today.

Businesswire.co.nz

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