BNZ says customers staying loyal

BNZ says its parent the NAB has provided sufficient support but expects a challenging year ahead. Photo / Richard Robinson

BNZ claims it has suffered no adverse customer reaction to its initial defeat this year defending Inland Revenue's contention it engaged in one of this country's biggest-ever tax rorts.

The bank yesterday reported a September year net loss of $181 million, a sharp turnaround from the $785 million net profit 12 months earlier.

The biggest single contributor to the reversal of the bank's fortunes was the $661 million provision it set aside against the $654 million in back taxes and interest sought by the IRD. The IRD's amended assessment over the BNZ's use of the "structured finance" mechanism to avoid paying tax was upheld by the High Court in July.

Yesterday, chief executive Andrew Thorburn said the bank had seen no sign its customers were bothered by the case. "I don't know why that is, but we've got over a million customers so there's a lot happening every single day in our bank."

Against its major bank rivals, all of which are facing similar tax issues, BNZ held its share of the housing market at 15.8 per cent and made small gains in credit card, agribusiness, and retail deposits.

Thorburn suggested customers were more interested in the overall strength and safety of the bank rather than its tax problems. Maintaining the bank's stability was "actually one of the most important things we could have done for the New Zealand economy" in what had been "an incredibly difficult and extraordinary year".

Acting chief financial officer Craig Brant said other significant factors weighing on the bank's bottom line for the year were the ongoing increase in bad and doubtful debt charges - up 176 per cent to $185 million - and the negative effect of non-cash items required under International Financial Reporting Standards.

Last year's net profit was also boosted by a $66 million gain on the sale of shares in the Visa IPO.

Excluding BNZ's corporate banking division, non-cash items and one-offs, cash earnings at $420 million, were down 13 per cent on a year earlier while pre-tax and pre-bad debt charge profit was up 1.7 per cent at $776 million.

Including the corporate banking business, core cash earnings were $703 million, up from $657 million a year earlier.

Thorburn said the unusually volatile conditions, particularly in the first half, had provided a BNZ Capital's markets division with excellent opportunities to make money.

The bank was "cautiously optimistic" about the current financial year, but while Australian media seized on parent National Australia Bank's commentary that bad debt charges may have peaked on the other side of the Tasman, Thorburn was less upbeat.

He saw sufficient headwinds, including rising interest rates and unemployment and the high and volatile local currency exchange rate, to suggest the current year would be another challenging one.

Despite recent speculation raising questions about the big Australian banks' commitment to the New Zealand market, Thorburn said parent NAB had provided, "significant support" throughout the year.

The key to that support continuing was for NAB to see "appropriate long-term returns for the investment they've made which any shareholder should do. That will be the challenge as we go through an economic outlook that has some concerns in it and where capital is scarce.

"So making sure that we keep the bank safe and strong and we continue to produce sound, quality long-term returns for NAB will be crucial for the future."