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ASB Bank first-half earnings rise as bad debt charges almost halve, lending expands

Wednesday 7th February 2018

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ASB Bank, the local unit of Commonwealth Bank of Australia, lifted first-half earnings 15 percent as impairment charges on bad debt almost halved and credit growth remained robust at a slightly wider margin. 

Cash earnings, the favoured measure of the Australian-owned banks stripping out financial instrument adjustments, rose to $575 million in the six months ended Dec. 31 from $502 million a year earlier. Impairment losses sank 47 percent to $26 million as the lender benefited from the recovery in dairy prices, while net interest income gained 8.2 percent to $999 million on a larger loan book with slightly better margins. 

"The result was the product of a combination of balanced lending and deposit growth across key portfolios along with stabilising margins," incoming chief executive Vittoria Shortt said in a statement. "The result was also influenced by lower impairment expense with the continued improvement in the dairy sector allowing for provision releases." 

CBA's New Zealand operations, which still include Sovereign Assurance pending the completion of its sale, contributed $589 million to the banking group, up from $514 million a year earlier. Sovereign's first-half profit climbed 20 percent to $53 million. 

The Australian group's cash earnings fell 1.9 percent to A$4.74 billion as the lender provided A$375 million for a civil penalty over Australian Transaction Reports and Analysis Centre claims it breached anti-money laundering provisions, and a further A$200 million was provided for anticipated increases in regulatory and compliance costs. Still, the board declared a fully-franked interim dividend of A$2, up from A$1.99 a year earlier. 

ASB was one of CBA's stronger performers in the period, with business and rural lending growth of 8 percent, outpacing the broader gains across all lenders, while a 5 percent increase in its mortgage loan book was slightly below average. ASB had $80.37 billion of outstanding customer advances as at Dec. 31, from $76.06 billion a year earlier. Of that, $52.58 billion was in residential mortgages, up from $50.23 billion a year earlier. 

Net interest margins widened 1 basis point to 2.2 percent, even as growing competition for deposits means the bank has to offer higher saving rates. ASB's deposits expanded 8 percent to $60.83 billion. 

The New Zealand lender's operating costs rose 3.4 percent to $425 million, of which staff costs rose 4.4 percent to $260 million as ASB's workforce expanded.

The bank's full-time equivalent staff numbers rose to 4,826 as at Dec. 31 from 4,697 a year earlier, with more frontline and compliance workers. That's in contrast to other lenders shedding staff with the closure of regional branch networks as they rethink their labour needs as automation of white-collar professions gains pace, reducing the need for workers in more manual areas such as data entry. 

CBA's ASX-listed shares last traded at A$77.40 and have slipped 3.7 percent so far this year. 


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