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NZPA

BNZ bank earnings down, institutional earnings up

Wednesday October 28, 02:36 PM

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Earnings are down in Bank of New Zealand's core New Zealand banking business but the institutional business had a bumper year, care of volatile financial markets.

The bank made a $703 million annual profit before one-time items, which include the $661m provision for the structure finance tax case the bank is appealing.

The bottom line is a $181m loss after the signalled one-time items.

BNZ's capital ratio of 10.88 percent remained well in excess of the Reserve Bank of New Zealand's minimum requirement of 8 percent.

"We are emerging from a tough year with a sound balance sheet, good asset quality and strong capital ratios," BNZ chief executive Andrew Thorburn said.

The New Zealand banking business, which traditionally provides about 75 percent of the bank's earnings, experienced a 12.9 percent drop in cash earnings to $420 million.

The institutional business experienced an 86 percent increase in cash earnings to $260m and earnings were particularly strong in the first half.

The bank regards this as a one in a hundred year type performance for the institutional business now called BNZ Corporate.

Other New Zealand banks have also reported strong earnings in their institutional businesses. Customers use institutional bank services more when financial markets are volatile as they have been during the global financial meltdown.

Commenting on the NZ banking result, the bank noted that its net interest margin fell 29 basis points to 2.13 percent. This is the difference between the interest income and amount of interest paid by the bank and is similar to a profit margin.

Doubtful debt charges for the year were $185m, up from $67m.

BNZ said it continued to support business through the recession, with business lending volume up 8 percent year on year, versus market growth of 4 percent. Market share in lending rose across all key business segments.

BNZ also led the market in abolishing honour and dishonour fees in July, and in so doing shifted an estimated $25m back to customer wallets for the year ahead, Mr Thorburn said. "As part of the NAB (National Australia Bank) group we remain one of around 10 banking groups globally which are AA rated," Mr Thorburn said.

NAB reported a 42.9 percent fall in annual profit after bad debt charges dented its bottom line, and said it saw signs the bad debt cycle was starting to stabilise.

Chief executive Cameron Clyne, a former BNZ boss, said the overall result for fiscal 2009 was solid given the difficult market conditions faced by the bank.

Net profit was $A2.589 billion ($NZ3.22b) for the 12 months ended September, down from $A4.536b in the previous year, the Melbourne-based bank said in a statement.

Group cash earnings, its preferred measure of profitability because it left out unrealised gains or losses related to asset values, fell 1.9 percent to $A3.841b, from $3.916b.

Underlying profit, which excluded expenses and bad and doubtful debt charges, was $A9.3b, up 14.6 percent.

The bank's bad and doubtful debt charge for the year was $A3.8b, up $A2.3b after excluding conduit costs.

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