Cooperative Bank 1H profit slips 2.4% on lower fees, higher staff costs

Friday 23rd November 2018

Cooperative Bank posted a 2.4 percent decline in first-half profit as lower banking fees and increased spending on staff and new technology dented earnings.

Net profit fell to $5.6 million in the six months ended Sept. 30 from $5.8 million a year earlier. Net interest income rose 15 percent to $31.1 million as the bank expanded its loan book. However, that wasn't enough to offset a 34 percent decline in fees and other income to $4.6 million and a 5.6 percent increase in operating costs to $30.4 million.

The bank's insurance division outperformed with a 34 percent increase in earnings to $2 million on a 13 percent increase in operating income to $4.2 million.

"The decline in profit was due to fee reductions of several million dollars offset by benefits of continued customer and balance sheet growth," chair Brendon O'Donovan said. "Expenses were up 5.6 percent, due to increased technology spend and higher staff costs."

The former PSIS refreshed its strategy in the March 2018 financial year, embracing new technology as the majority of its customers interact with the bank through digital channels. The lender added $3.5 million to its software assets in the year through March, taking the total spend to $36.7 million as at March 31. After accumulated amortisation, the book value of the bank's intangible assets was $14.1 million at that date, shrinking to $13.1 million as at Sept. 30.

O'Donovan said the bank has kept investing in online and mobile products and noted a material increase in customers using digital channels for services such as signing up and new sales.

That strategy review affirmed the bank's cooperative structure in being customer-owned, which it says underscores its client focus. New Zealand's smaller banks scored well in maintaining customer trust in a survey by the Reserve Bank and Financial Markets Authority for its conduct review. However, the minnows were seen as lagging behind their larger peers in considering conduct risks.

O'Donovan said the Cooperative Bank welcomed the review and will implement any relevant recommendations, without being specific.

Cooperative Bank's gross loans grew to $2.39 billion as at Sept. 30, up 4 percent from a year earlier. Of that, residential mortgages were $2.21 billion, up from $2.12 billion, while non-residential loans rose to $184.2 million from $177 million.

Its provisioning for bad debt grew to $5.9 million from $4.8 million, although past-due but unimpaired loans declined to $48.2 million from $53 million. Impairment charges rose to $1.8 million in the half from $1.2 million.

The bank's customer deposits expanded to $2.25 billion from $2.2 billion a year earlier.

Cooperative Bank has $15 million of 10-year subordinated notes paying annual interest of 6 percent listed on the NZX's debt market. The notes last traded at $102.845 per $100 face value, or a yield of 5.05 percent.

(BusinessDesk)

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