ASB profit climbs 12% on higher interest earnings as Australian parent resets strategy

Wednesday 8th August 2018

ASB Bank, the local unit of Commonwealth Bank of Australia, lifted profit 12 percent as the local bank lifted its earnings from growing interest income and wider margins.

Cash earnings, the favoured measure of the Australian-owned banks which strips out financial instrument adjustments, rose to $1.14 billion for the New Zealand unit in the year ended June 30, from $1 billion a year earlier. Statutory net profit jumped 10 percent to $1.18 billion, on growing operating income.

The New Zealand lender's net interest earnings rose 10.2 percent to $2 billion, as ASB's total deposits gained 7.3 percent to $62.4 billion. The bank had $82.9 billion of outstanding customer advances as at June 30, from $78.1 billion a year earlier. Net interest margins increased to 2.24 percent from 2.17 percent in 2017.

ASB's operating costs rose 5.4 percent to $879 million in the year, while impairment losses increased 16 percent to $80 million.

The Australian group's net profit dropped 6 percent to A$9.33 billion as total operating income rose to A$25.9 billion, from A$25.3 billion a year earlier. In the latest financial year, the lender paid a total A$700 million for a civil penalty over Australian Transaction Reports and Analysis Centre (AUSTRAC) claims it breached anti-money laundering provisions. Still, the board declared a fully-franked interim dividend of A$2.31, taking the total dividend for the year to A$4.31, from A$4.29 a year earlier.

The bank has faced scrutiny for its conduct by the Australian Prudential Regulation Authority (APRA) and has entered into an enforceable undertaking with the regulator. Separately, the Royal Commission into misconduct in the sector is ongoing, with Commonwealth Bank having paid out refunds for fees they charged customers for services it never provided. The bank said today that one-off regulatory costs from the Royal Commission, AUSTRAC proceedings and the APRA inquiry totalled A$155 million.

Chair Catherine Livingstone apologised for the bank's behaviour on behalf of the board in the annual report, as did chief executive Matt Comyn, who took over the role in January. Both said Commonwealth Bank is committed to rebuilding trust.

Comyn said the bottom line had been impacted by the AUSTRAC penalty and compliance costs, but "excluding these items, expense growth was maintained at low levels due to productivity initiatives. This supported growth in overall earnings, excluding non-recurring items. Importantly, our balance sheet continued to strengthen across funding and liquidity metrics, and we remain one of the best capitalised banks in the world."

The Australian bank plans to simplify its portfolio and focus more on its core banking businesses in Australia and New Zealand, and will demerge its wealth management and mortgage broking businesses into a separate listed entity named NewCo, while it invests more in mortgages, business banking, and payments.

CBA's New Zealand operations will remain separate from the Australian parent though its strategic direction will be "broadly aligned" to the Australian mass retail customer proposition, the company said.

In the year, it sold its life insurance businesses, including Sovereign Insurance in New Zealand which was sold to AIA Group on July 2. CBA booked a post-tax gain of A$102 million from that sale.

CBA's ASX-listed shares last traded at A$72.89 and have dropped 9.3 percent so far this year.

(BusinessDesk)

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