BNZ annual cash earnings rise

Bank of New Zealand increased annual cash earnings by 7.9% as the lender took fatter margins from an expanding loan book, offsetting increased write-downs on its dairy sector loans.

Cash earnings for the BNZ group, which includes the bank's capital management and market operations units, rose to $966 million in the 12 months ended September 30 from $895 million a year earlier.

Net profit jumped 22% to $1.04 billion, with operating income up 14% to $2.43 billion.

Stripping out the capital management and market operations units, the New Zealand banking segment's cash earnings rose 2% to $823 million on a 4.4% increase in operating income to $2.09 billion, lagging behind gains in its parent company National Australia Bank’s (NAB) other divisions.

"Good underlying profit growth was partly offset by higher collective provision charges in half year, predominantly relating to the dairy sector," NAB says in its group results.

"Revenue rose 4% with improved lending volumes and higher margins."

The wider NAB group reported a 16% increase in cash earnings to $A5.84 billion on a 4.2% rise in operating income to $A19.3 billion.

Net profit climbed 20% to $A6.34 billion, and the board declared a final dividend of 99Ac per share, fully franked.

NAB also announced the sale of 80% of its life insurance business to Japan's Nippon Life Insurance Co for $A2.4 billion, which will result in a loss of about $A1.1 billion. It also confirmed an IPO of its UK-based Clydesdale Bank.

Australian banks have been raising capital to firm up their balance sheets in response to more stringent regulatory capital requirements.

NAB's New Zealand banking arm expanded its gross loans and acceptances to $65.8 billion from $63 billion a year earlier, although it lost market share in home lending after strong competition and a reluctance to use mortgage brokers left it behind. It started using brokers in May of this year.

BNZ also lost ground in cards after losing its GlobalPlus rewards programme, which was tied to Air New Zealand's AirPoints loyalty scheme.

Still, margins widened to 2.39% from 2.34% a year earlier, as cheaper funding costs and higher returns on capital offset the stiff competition in the mortgage market.

The bank's collective provisions rose to $375 million from $278 million a year earlier, with a lower dairy payout expected to put pressure on farmers' cashflows. The lender's market share of agribusiness is largely unchanged at 22.2%.

BNZ chief executive Anthony Healy says the lender has taken a conservative approach to the dairy sector to recognise a period of lower and more volatile prices.

"Asset quality in our agri and dairy books remains extremely sound," Mr Healy says. "We are well placed to continue supporting our farming customers through a more volatile trading period."

(BusinessDesk)