UPDATE: BNZ lifts first-half profit 12.2% as lending grows and margins fatten

Thursday 2nd May 2019

Bank of New Zealand’s first-half net profit jumped 12.2 percent, boosted by gains on the sale of its 25 percent stake in Paymark and increased business and housing lending.

The bank, which is owned by National Australia Bank and is the smallest of the “big four” mortgage lenders but the second largest by total assets. It reported a $550 million net profit for the six months ended March, up from $490 million in the same six months a year earlier.

“We have purposefully realigned the business to deliver improved customer outcomes and we’re encouraged by our progress to date and excited about the future,” BNZ chief executive Angie Mentis said in a statement.

Talking about “customer outcomes” has become fashionable in banking circles since the findings of Australia’s royal commission into financial services. Mentis says her bank has provided “a comprehensive response” to the joint review of New Zealand bank culture and conduct by the Reserve Bank and Financial Markets Authority.

“Our response highlighted BNZ’s focus and resolve on conduct to do the best we can for our customers and outlines our plan to meet the increasing expectations of our customers and stakeholders,” Mentis says.

“Proactively fixing issues where we find them is key to delivering great customer outcomes and continuing to listen and proactively support New Zealanders is the right thing for BNZ to do,” she says.

Mentis told BusinessDesk that BNZ continues to make progress on its plan announced last year to halve the number of products it offers. She says 26 products, including credit card and savings products, were removed in the first half and that the bank is on target to reduce fees on 45 products this financial year. The total reduction in fees this year will be $38 million, she says.

BNZ removed ATM fees in the second half of last year.

Mentis says BNZ is finalising its submission to the Reserve Bank on its proposals to lift bank capital requirements which are expected to force the banks to find an additional $20 billion in equity during a five-year phase-in period.

"We absolutely support the Reserve Bank's intentions of having a strong financial system. We think it's an important discussion," she says.

However, it's also important that New Zealand gets the balance right between banks' financial strength and the economic costs, she says.

Unlike ANZ Bank, which yesterday reported falling net interest margins, BNZ expanded its margin to 2.30 percent in the latest six months, up six basis points from the previous first half.

ANZ New Zealand's NIM is still higher than BNZ’s, easing to 2.38 percent in the latest six months from 2.42 percent.

BNZ chief financial officer Peter MacGillivray says the NIM increase partly reflects changes in the bank's funding mix and the "very competitive" deposits market.

BNZ's share of retail deposits fell 40 basis points to 18.1 percent, largely because term deposits fell 130 basis points to 18.1 percent - other types of deposits are categorised as transactional or savings.

"We're obviously in a very low interest rate environment and we've seen our share decline a little," MacGillivray says.

While BNZ's offshore wholesale funding has been "relatively static," falling interest rates have meant some of its wholesale borrowing costs have been cheaper year-on-year.

NAB’s results and presentation show BNZ’s business lending rose 4.7 percent to $42.2 billion from the previous first-half. Retail lending rose 8.1 percent to $42.7 billion.

BNZ’s share of the mortgage market rose 20 basis points to 15.9 percent and its share of business lending rose 10 points to 23.6 percent.

However, its share of lending to agribusiness eased 50 basis points to 22 percent.

MacGillivray says that drop reflects a reduction in business with corporate dairy farmers who own multiple farms.

NAB’s results also show that mortgage brokers now account for 17.7 percent of BNZ’s mortgage origination, up from 13 percent a year earlier.

"We're still below our natural share and our proprietary channels are still very productive," Mentis says, estimating that brokers account for about 35 percent of new mortgage business.

BNZ resumed dealing with mortgage brokers in 2015 after 12 years of refusing to have anything to do with them.

The NAB results also show that owner-occupied mortgages account for 65.4 percent of BNZ’s mortgage book, up from 63.8 percent a year earlier, and that interest-only mortgages account for 21.4 percent of its book, down from 22.8 percent a year earlier.

NAB reported a A$2.69 billion net profit for the six months, up 4.3 percent, although that included a further A$525 million in costs to fix problems uncovered by the royal commission.

NAB also cut its dividend and reinstituted its dividend reinvestment plan to help shore up its capital position to the Australian Prudential Regulation Authority’s “unquestionably strong” level of 10.5 percent of risk-weighted assets.

(BusinessDesk)

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