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ASB lifts annual profit 8% but says underlying growth was subdued

Wednesday 7th August 2019

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ASB Bank lifted annual net profit 8.2 percent, including the one-off profit from selling Paymark, but says the underlying rate was more subdued than in previous years.

The bank, which is owned by Commonwealth Bank of Australia, reported a $1.27 billion net profit for the 12 months ended June, including the $46 million Paymark profit, compared with $1.18 billion the previous year.

“While all parts of the business contributed to the result, growth in underlying profit was more subdued this year, reflecting a backdrop of slowing credit growth in the business and consumer finance sectors,” says ASB chief executive Vittoria Shortt in a statement.

ASB’s investment to prevent financial crimes and increase cyber security contributed to the bank’s 4 percent increase to $967 million in operating expenses, Shortt says.

“Our long-term financial performance is driven partly by our continued focus on investing in and driving efficiency,” she says.

“Our cost efficiency advantage positions us strongly and allows us to be more resilient and remain profitable in the event of an economic downturn. “

ASB increased its tier 1 common equity by $500 million to $6.4 billion, or 11.4 percent of risk-weighted assets, during the year.

The Reserve Bank is proposing to lift the minimum tier 1 common equity ratio from 8.5 percent current to 16 percent for the four major banks including ASB after a phase-in period of several years. RBNZ is scheduled to announce its final decisions on bank capital in November.

ASB’s net interest margin shrank 3 basis points to 2.21 percent in the latest year and Shortt attributes that mostly to higher funding costs and also to mortgage customers’ preference for fixed-rate loans.

She says that was partly offset by lower costs relating to customers breaking fixed-rate loans.

ASB’s disclosure statement shows its mortgage book grew by $1.86 billion to $57.6 billion between December last year and June this year and by $3.3 billion, or 6.1 percent, over the full year, up from the $3.02 billion growth the previous year. Its customer deposits grew by $3.09 billion, or 5.5 percent in the latest year.

The bank’s charges against profit for bad and doubtful debts jumped 35 percent to $108 million in the latest year which Shortt says was due to a change in accounting standards.

“Overall, credit quality remains sound,” she says.

ASB’s Australian parent reported an 8.1 percent fall in annual net profit to A$8.75 billion which it attributes to remediation costs in the wake of Australia’s royal commission into financial services, the removal of fees and the cost of risk and compliance measures.

CBA shares closed yesterday at A$79.80 and they have risen more than 8 percent in the past year compared with the S&P/ASX 200 Index’s 3 percent gain.

(BusinessDesk)

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