ASB chief executive Vittoria Shortt. Photo / Supplied
Home loan borrowers are coping with the rise in interest rates so far but ASB has increased its provisioning as a precaution, its chief executive says.
The bank this morning announced another record full-year net profit of $1.47 billion for the year to June 30 - up 11 per cent on the prior financial year.
CEO Vittoria Shortt said some of that profit was attributable to one-off items like the sale of its superannuation master trust business and its underlying profit increase was 4 per cent.
"That's really a function of the New Zealand economy. Our deposits and lending growth is up even though year on year the growth levels have moderated."
The bank's total advances to customers rose 5 per cent to $105b while its deposits were up 8 per cent to $85b.
Home lending rose 6.3 per cent over the year - slightly below the system rate of 6.5 per cent. But it was down from 12 per cent in the prior financial year due to the slowing property market.
Shortt said about a third of its customers were on new rates that were about 1 per cent higher than what they were on a year ago.
"When we have a look at how they are going, they are going really well actually. We can see that in our metrics but we are also proactively calling our customers and just checking in to see how they are."
She put it down to low loan to value ratios and a servicing test rate of 6.45 per cent last year during the low rates. That rate has since moved up to 7.85 per cent.
"That really builds in a buffer to make sure customers can afford higher interest rates.
"The low interest rates were the anomaly. What we are seeing now is interest rates moving back to more of their historical norms."
Home loan arrears were flat over the year rising just 1 basis point to 0.19 per cent of loans.
Shortt said it had not seen a material shift in arrears so far.
"We have increased our provision slightly - a big part of that though is we have a much bigger book, as our lending grows you automatically provision a bit more.
"It also reflects we want to keep an eye on these emerging risks as well."
But she said having a servicing test rate of 7.85 per cent meant there was quite a good buffer when current one and two year fixed home loan rates were around 5.35 per cent.
She said many of those who ran into difficulty were facing challenges in their circumstances such as an illness, partner separation or job loss.
Shortt said the unemployment rate was a key metric it was watching. Figures from last week saw it rise slightly from 3.2 to 3.3 per cent for the year to June 30.
"It is so low and it has got a way to go before we would see that as an issue."
More of an issue was wage inflation which was coming through because of the tight labour market.
"On the one hand it is helpful for our personal customers but on the flip side it is really playing into some challenges for our business customers.
"We really need to think about immigration as part of the response to this really tight labour market."
Shortt said there was a lot of demand for workers with digital skills because of the impacts from Covid driving business online.
"All roads point to people with those skills. In the short term we have to be realistic about how much we can get done. We also need to try and bring in those skills but in the longer term we have to build those skills ourselves in New Zealand."
She said for ASB it meant training up its existing software engineers to match its investment in the cloud.
The bank boosted its staff numbers by 3 per cent over the year to 5879 employees but a reopening of the border had done little to ease the labour shortage pressure.
"We have had a lot of vacancies in these high-pressure areas - it has been around 100 roughly in aggregate. We haven't yet seen any easing of that pressure.
"There is a bit more time required for people to have the confidence around mobility. I think that is a worldwide issue, not unique to New Zealand. "
Business lending
ASB's business lending was well below the system at 6.1 per cent compared to 8.6 per cent.
Shortt said that came down to businesses not meeting its affordability criteria.
"We have tried to be consistent in market and our primary objective is affordable lending. The outcome of that is market share. But market share is not the input.
Consumer lending
Personal loans and credit card issuance has dropped across the board with the changes to the Credit Contracts and Consumer Finance Act changes made in December.
The Government has since announced two lots of tweaks to those - the first came into force in July with a second set due in March next year.
Shortt doubted the changes would make any material difference to its lending.
"We were very supportive of the intentions of the CCCFA but were very comfortable with our affordable lending approach in the first place."
ASB's consumer arrears have begun to rise increasing 13 basis points to 0.49 per cent of loans over the year.
Shortt said it was looking hard at all arrears.
"But we don't see anything in there that is worrying us at the moment."
The bank has increased its loan impairment by $46m.
Shortt said the big challenges ahead were economic factors.
"How high do the interest rates need to go to combat this inflation? The big challenge for all of us is these economic factors and how they shift over the next 12 months or so."
Shortt's remuneration
Shortt's remuneration climbed to A$3.65 million (NZ$4.04m), up from A$2.87 million the previous year, according to CBA's annual report.
Asked if she had any plans to move up the ranks at parent company Commonwealth Bank of Australia Shortt said she loved her current role.
"I love this job. It is an absolute privilege leading this business. I am very happy."