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BNZ's net profit falls slightly as bad debts rise

Thursday 7th November 2019

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Bank of New Zealand's annual net profit fell marginally as operating expenses rose faster than net interest income and as charges against profit for bad debts jumped 39 percent, although they remain low.

The bank, which is owned by National Australia Bank and is the smallest of the "big four" mortgage lenders but the second largest by total assets, reported a net profit of $1.02 billion for the year ended September, down from $1.03 billion the previous year.

BNZ says its bottom line was hit by software write-downs, offset by a profit from selling its 25 percent Paymark stake and an insurance settlement. Excluding those items, net profit would have risen 2.2 percent.

The insurance settlement related to earthquake damage to its premises in Wellington during the Kaikoura quake in November 2016.

Charges for bad debts jumped from $82 million to $114 million, or 0.13 percent of gross loans and acceptances, and the bank says that was driven by an increase in specific provisions relating to a small number of large corporate dairy exposures.

"BNZ's focus on helping New Zealanders be good with money so they can do great things with it has seen growth in lending across business and consumer portfolios," says chief executive Angie Mentis in a statement.

"This is supported by our continued emphasis on simplifying our products, improving our systems and fixing issues when we find them," Mentis says.

BNZ cut 36 products from its range, removed overseas ATM fees and helped customers to go online, thereby reducing 2.8 million pieces of paper from its processes, the bank says.

BNZ's net interest margin fell 2 basis points to 2.25 percent, which it blamed on falling interest rates – the Reserve Bank has cut its official cash rate from 1.75 percent to 1 percent so far this year.

The bank says its gross loans and acceptances rose 5.6 percent to $87.2 billion while customer deposits grew at the slightly lesser pace of 5.1 percent to $61.5 billion.

Net interest income rose 5.9 percent in the year to $2.06 billion and other operating income jumped 11.2 percent to $466 million, while net gains on financial instruments fell to $129 million from $191 million. Operating expenses rose 8.6 percent to $1.14 billion.

NAB reported a 13.6 percent drop in annual net profit to A$4.8 billion and said it recognised A$1.1 billion in charges for remediating customer problems.

That reflects the fallout from Australia's royal commission into financial services.

NAB also revealed that its common equity tier 1 capital ratio fell to 10.38 percent, below the Australian Prudential Regulatory Authority's 10.5 percent "unquestionably strong" benchmark.

The bank is remedying that shortfall via a discounted and underwritten dividend reinvestment plan which will raise between A$1-2 billion and lift the CET1 ratio to 10.75 percent.

NAB's release showed BNZ's share of housing lending rose from 15.7 percent to 16 percent in the year while its share of agribusiness and business lending also rose marginally.


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