ASB Bank lifts annual earnings 5% as bigger loan book offsets skinnier margins

ASB Bank boosted annual earnings by 5 percent as increased business and mortgage lending boosted the lender's income streams facing tighter margins in a highly competitive market.

Cash profit rose to $908 million in the 12 months ended June 30 from $864 million a year earlier, ASB's parent Commonwealth Bank of Australia said in its accounts. Total banking income gained 6 percent to $2.14 billion with the bank's loan book expanding 5 percent to $72.32 billion from a year earlier. The bank took a $130 million impairment charge in the year, up from $89 million in 2015, due to increased provisioning of dairy sector loans and higher unsecured retail loan provisioning.

"The result was driven by operating income growth of 6 percent representing strong lending and deposit growth, partly offset by margin compression across key products, higher operating expenses, and increased loan impairment expense," CBA said. "Net interest margin decreased, reflecting continued competitive pressure on lending and deposit margins and a customer preference for lower margin fixed rate borrowing."

Local lenders are expected to get a break tomorrow with the Reserve Bank poised to cut interest rates to a new record low, with speculation they might not pass on all of the reduction to borrowers as credit growth outstrips deposits. A lack of ready depositors means the banks have to go to more expensive international wholesale markets for funding.

CBA's Sovereign Assurance insurance unit posted a 15 percent drop in annual cash profit to $105 million as expenses rose 9 percent to $135 million on increased staff costs and spending on new technology. That outpaced a 2 percent increase in insurance income to $230 million as unfavourable claims offset annual premium growth.

The New Zealand units contributed A$877 million to CBA's A$9.45 billion cash profit in the year, up 3 percent from 2015. The Australian lender's banking income rose 6 percent to A$21.8 billion, with its dominant retail banking services division delivering the biggest increase to the group's earnings.

CBA's board declared a final dividend of A$2.22 a share, payable on Sept. 29 and taking the annual payment to A$4.20.

CBA chief executive Ian Narev said the lender will have to focus on productivity and credit quality as a slowing economy, tense competition and increased regulation weigh the outlook.

The ASX-listed shares last traded at A$78.41 and have dropped 8.3 percent so far this year.

(BusinessDesk)

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