TSB Bank has raised its internal target for how much capital it will hold on its books, brought on in part by the Reserve Bank's proposals for a higher minimum requirement.
The bank's total capital ratio was 14.57 per cent as at March 31, up from 14.28 per cent a year earlier. All of it was common equity tier 1 capital, consisting of paid-up share capital and retained earnings. The New Plymouth-based lender's board approved an increase in minimum levels of regulatory capital to 14 per cent in the year, from 13.75 per cent.
The higher capital level brings the community trust-owned bank within cooee of the central bank's proposed 15 per cent requirement for smaller lenders, although any changes by the central bank would be phased in through a transition period. The RBNZ is currently reviewing 164 submissions on the proposals and has said it plans to announce its decision in November.
TSB chief executive Donna Cooper said in an emailed statement that it raised its minimum capital level after an internal assessment of its capital adequacy.
"One of the inputs to this process was an expectation of higher regulatory minimum requirements in future, but it was not the only factor," she said.
In the bank's annual report, Cooper said the lender supports the intention to create a level playing field between all banks and ensure a sound banking system. But it was also "carefully considering the impact this could have on our future operations".
TSB reported a net profit of $45 million in the year ended March 31, down from $51.9 million a year earlier when the lender recorded a $15.5 million recovery on its impaired Solid Energy redeemable preference shares. It has retained $35 million of earnings, up from $31.9 million a year earlier.
The bank was one of six that agreed to a debt restructuring for the failed coal miner, which has since sold its assets to several interests. It booked another $2.1 million recovery in the 2019 year.
Excluding the Solid Energy debt recoveries, pre-tax earnings rose to $60.5 million from $56.6 million, with net interest income up 8.8 per cent at $138 million. The bank's loan book grew to $5.79 billion from $5.31 billion. Of that, its residential mortgage loans rose to $4.84 billion from $4.39 billion and agricultural lending was up at $317.3 million from $307.5 million.
TSB's deposits rose to $7.09 billion from $6.74 billion.
The bank paid a dividend of $10 million to its shareholder, TSB Group, the commercial arm of TSB Community Trust. That was down from $20 million a year earlier, although the 2018 return included a $10 million special dividend to help the trust increase its shareholding in Fisher Funds.
Chair John Kelly said in the annual report that a business plan has been set for the current financial year while the board develops a broader strategic approach.
"This will provide a clear and achievable focus for getting the fundamentals right, stepping it up in the customer space and knowing the key priorities which will make the biggest difference in enabling TSB's strong performance in the years to come," he said.
Cooper said the strategy will centre around an existing approach of putting customers first.
"This year we are further developing our strategy by working to understand what is most important for our customers, so we can continue to evolve and lead the industry," she said.
The annual report states four pillars for setting TSB's future. They include a programme of work to push a customer-focused culture, maintaining the firm's reputation as the best bank for customer service, investing in new digital products and services, and making sure the bank hires the right people to support its goals.