ASB profits up 7pc to record $444m

ASB chief executive Barbara Chapman. Photo / Richard Robinson

Business diversification and favourable funding conditions are helping ASB to offset margin pressure resulting from fierce competition in the home loan market, says chief executive Barbara Chapman.

The Auckland-based bank yesterday reported a 7 per cent rise in statutory half-year profit to a record $444 million.

Cash profit, which excludes one-off and volatile items, lifted 9 per cent in the six months to December 31 to $429 million, the bank said.

Total operating income rose 6.9 per cent to $1.1 billion.

Underpinning the profit lift was a 15-basis-point increase in net interest margins to 2.5 per cent. Chapman said the favourable funding conditions that contributed to the net interest margin increase were likely to continue into the second-half of the bank's financial year.

"What we're seeing overseas is that the funding markets are pretty stable," she said. "There's been a slight increase in cost over the December/January period, about 5 basis points, but overall globally funding costs are pretty low at the moment."

Chapman said quantitative easing programmes overseas were helping to keep a lid on funding costs.

The European Central Bank, for example, announced a 1.1 trillion ($1.7 trillion) bond-buying programme last month, which aims to kick-start economic growth and combat deflation in the eurozone.

Chapman said competition for home loans would only increase, but ASB was taking a measured and balanced approach to that part of the market.

"That's been helping our margins," she said. "As we've diversified the [loan] book into business and rural we've been able to ease off a little bit on home lending. Obviously we're there to help our customers, but we're not being overly aggressive in the market at the moment."

As the so-called "mortgage wars" continue, rival lender ANZ this week announced new one and two-year specials of 5.39 per cent and a five-year special of 5.89 per cent.

And last week TSB unveiled what is believed to be New Zealand's first 10-year fixed rate at 5.89 per cent.

ASB said loan impairment expenses rose 76 per cent on the same period a year earlier to $37 million.

"This increase reflects the non-recurrence of a sharp decrease in arrears over the previous period with arrears having since stabilised," Chapman said.

Despite the lift in bad debts, she said ASB expected its bumper profits to continue.

"New Zealand's in a pretty good spot - there's good confidence in the economy and customers are prepared to invest and borrow and lift insurance and funds under management," Chapman said.

"It's that kind of consumer activity that's driving our profits so while New Zealand's in a good spot I think profits in this sector will be strong."

ASB's Australian parent, Commonwealth Bank, reported a record half-year profit of A$4.6 billion.

See the ASB profit announcement here: