ASB first-half profit rises; loan impairments increase

See also: ASB grows mortgage market share; interest margin falls

ASB Bank had a 7% rise in first-half statutory net profit to $474 million following growth in funds management and lending while the amount set aside for loan impairments went up to 11%.

The bank reported a cash net profit after tax, its preferred measure as it removes one-off distortions, of $475 million for the six months ending December 31, up 8% on the prior comparative period.

ASB chief executive Barbara Chapman says New Zealand's rural sector continues to face headwinds, particularly in relation to volatile international commodity prices but despite the uncertainty, the bank's rural book remains sound.

"Our priority has been to look beyond the current cycle and support our customers in the sector as they manage their farms and businesses through this challenging period," she says.

"That said, we have increased our level of provisioning for the rural portfolio to reflect the challenges the sector is facing."

Loan impairment expense, which is a reduction in the recoverable amount of a loan below its carrying amount, was $41 million, up from $37 million the previous year but down from $52 million in the half-year to June 2015.

The bank says it is in line with expectations following strong lending growth, increased rural provisioning, and higher business lending write-backs, partly offset by lower home arrears.

ASB's disclosure statement shows its credit exposure to the agricultural industry is $9.46 billion of financial assets at amortised cost.

Its collective provision for impairment losses for corporate borrowers, which include rural, was $99 million at the end of the half year, up $19 million on the balance at the beginning of the six months. Provision for residential mortgages reduced to $34 million from $39 million at the start of the period.

Ms Chapman says it is a solid first-half performance in a highly competitive market with advances to customers up 10 % to $68.7 billion, following growth in business, commercial, rural, and personal lending.

Home loan growth was in line with the market, rising 8% to $45.6 billion. Customer deposits were up 9%.

Operating income rose 6% to $1.2 billion, of which banking income accounted for $1.07 billion, funds management for $43 million, and insurance income for $140 million.

Operating expenses were up 2% which the bank says was due to inflation-related salary increases despite the current low inflation and continued investment in front line capability and technology.

The cash net interest margin decreased by 13 basis points on the prior comparative period and 6 basis points on the prior half to 2.27%.

The largest single contribution to the change in net interest margin is customers taking advantage of the current low interest rate environment, Ms Chapman says.

"Against the background of a highly competitive market for both lending and deposit products, we have also seen a continued customer preference for lower margin fixed-rate mortgages," she says.

Funds management had income growth of 17% and Ms Chapman says about 40% of customers now have wealth and insurance products combined.

The customer shift to mobile banking continues with users of ASB's mobile app up by about 37%.

Commonwealth Bank of Australia reported statutory net profit after tax of $A4.6 billion, up 2% on the previous comparative period and has declared an interim dividend of $A1.98 per share, unchanged from its 2015 interim dividend.

(BusinessDesk)