ASB boss Vittoria Shortt says New Zealand is headed into a period of lower growth and faces a number of challenges including the local and US elections, coronavirus and potential productivity constraints.
But she remains optimistic.
"New Zealand is definitely in a low growth environment but it has good fundamentals - the housing market is picking up and business confidence has also improved. We really like commodity prices."
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Speaking to the Herald after the bank revealed a 5 per cent drop in net profit after tax to $599 million for the six months to December 31, Shortt said there were also a range of issues that were on its "watch out" list.
"The elections - both here and in the US - they could be destabilising. Trade - that is not done and dusted. Coronavirus - that is still really unfolding."
Shortt said ASB was staying close to its customers who were exporters into China and the New Zealand authorities.
"It's most certainly a concern and one that we will stay close to."
It was also keeping a close eye on productivity capacity and private indebtedness, Shortt said.
ASB's interim result shows the bank took a less aggressive approach in the second half of last year.
While its home lending rose 6 per cent to $58.87b that was less than the growth of the overall market which was up 7 per cent.
Its business lending was up 5 per cent to $17.6b but that was also below the market growth of 6 per cent.
Meanwhile its rural lending was down 2 per cent to $11b against system growth of 1 per cent.
Shortt said the pull-back on rural lending was an explicit strategy for the bank.
"We did a really in-depth review of our rural portfolios. We wanted to make sure all our customers had resilience in the current financial settings."
Shortt said there were a lot of changes occurring in any business but particularly in the dairy sector which was facing changes around environmental impact, intergenerational farm hand-overs, changes from the overseas investment rules which had hit farm sales and a lot of volatility in terms of commodity prices.
"When you add all those things together it was important to us that our customers had resilient settings."
For some customers the record dairy price meant they were able to pay down debt while others were able to acquire additional assets.
Shortt said the shift had played through into its loan impairments which reduced over the half by 51 per cent to $22m.
The bank's net profit fall was driven by a $28m loss on the sale of its Aegis funds administration business.
Shortt said it decided to sell Aegis as it was non-core to the bank and it was very normal as part of a merger and acquisition process to test the value of an asset.
"Ultimately the new owners saw less value than us." But she said it had been more important to find the right owner given ASB would remain a customer of the business.
ASB's cash net profit, which excludes one off items like the Aegis sale, hit $614 million - a flat result on the same prior period in 2018.
Shortt said the result was consistent with a lower growth operating environment.
"A key feature of the past six months has been the low interest rate environment with rates dropping to historical lows, and we're conscious that, while low interest rates are good news for borrowers, for many of our customers with savings it creates a real challenge."
The bank's margin - the difference between what it earns from lending and what it costs to pay for deposits - was squeezed down 10 basis points from 2.23 per cent to 2.13 per cent.
Shortt said the margin decline reflected lower interest rates impacting deposit margins.
"Subdued income growth in a low interest rate environment, combined with our ongoing strategic investments in our people, digital and risk capabilities have impacted our cost-to-income ratio.
"Ultimately, we believe that these long-term investments will provide a better banking experience for our customers and a safer, more secure New Zealand," Shortt said.
Staff numbers at the bank also rose 3 per cent from 4,927 to 5,074.
Shortt said it had been hiring more people than ever before with specialist skills and experience, particularly in areas such as financial and cyber-crime.
"Over the past 18 months, we have employed an extra 150 people in our financial crime teams.
"We are committed to keeping New Zealand safe and addressing the growing volume and sophistication of financial crime," Shortt added.
The bank had screened more than 960 million transactions to combat money laundering and financial crime and declined fraudulent activity on over 8,500 customer cards in the last six months.
Shortt said it didn't expect to continue growing staff numbers at that pace but said regulatory change would be ongoing and that would continue to show through in expenses.
ASB's expenses jumped 7 per cent to $508m as it invested in technology and hiring more people.
Its net interest income was down slightly to $1.060 billion and its total operating income rose 1 per cent to $1.383b.
ASB parent Commonwealth Bank of Australia made a net profit after tax of A$6.161b - up 34 per cent after making a gain from the sale of its Colonial First State business.
But its cash net profit after tax was down 4.3 per cent to A$4.477b.