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Ready Acceptance Of ASB Bank Lifts Profit

Statement made by Gary Judd QC, Chairman, ASB Bank Limited


Ready acceptance of ASB Bank as a full service, nationally operating bank and financial services provider has lifted ASB Bank to a record unaudited first half after tax operating profit of $89.4 million for the period ending 31 December, 2000, up 31% on the result for the 6 months to 31 December 1999.

The strong growth is not attributable to any one particular aspect of our business. Rather it was achieved through solid gains across all the Bank’s operations.

We improved market share in our core areas of corporate, treasury, business, rural and personal banking and also improved our share of the market in cities and provincial centres where historically we have not previously been well represented. There was also ready acceptance of our new financial services, such as funds management and securities trading. On top of that we held operating costs across the Bank.

The combined impact has produced an excellent result during a period when business and consumer confidence initially retreated rapidly, before starting to build again towards the end of the calendar year.

Operating income for the Bank during the six months was $309 million, up 16% on the same period last year.

The majority of this increase came from the Bank’s interest earnings. Our net interest margin improved from 2.26% to 2.37%, earning the Bank $213.3 million, up 20% on the figure for the corresponding six months. Despite this increase, the Bank is still behind the industry benchmark for earnings on assets achieving 0.98% compared to the benchmark of 1.00%.

Strong support for the Bank’s term deposits had a material affect on the net interest margin by lowering the overall cost of funds and this was the first occasion for many years where the margin improved on the corresponding period.

Other income increased by 8% to $95.7 million, and included excellent contributions from treasury, card income and financial services. Within this, the contribution from personal customer transaction charges and fees was $19.0 million, an increase of 5%. This increase arose from increasing transaction numbers and without any increase in base or transactional fees paid by customers. Personal customer transaction charges and fees represents only 6% of operating income. Less than half of all ASB Bank personal customers pay any transaction charges or fees.

Expenses increased by 7% to $174.1 million, and the ratio of expenses to income declined to 56.3% (from 60.6%).

The Bank made a provision for taxation of $38.7 million ($31.4 million for the previous period) and a debt provisioning expense of $6.8 million ($5.3 million).

Although the housing market was subdued nationally with sales dropping to 10 year lows, the Bank more than held its share of the market with new home lending approvals for the six months being $1.28 billion, a marginal decline of 3% on the same period last year.

Since 31 December 1999, business lending has increased by 12% and rural lending 20%, continuing the market share gains of previous years.

Likewise total advances have increased by 14% to $15.19 billion and total deposits, including amounts due to other banks, by 12% to $17.22 billion.

The Bank’s corporate and treasury operations all made significant contributions to the improved profit.

As part of the financial restructuring which took place at the time Commonwealth Bank acquired the remaining 25% of ASB Bank’ shareholding from ASB Bank Community Trust, the Bank paid a dividend during the period of $150 million.

At period end total shareholder’s funds stood at $784.8 million ($798.1 million) and the Bank’s annualised return on ordinary shareholders’ funds was 22.76% (18.44%).

Total assets at 31 December 2000 stood at $18.5 billion, up 11% on 1999.

Two of the more prominent recent initiatives by the Bank have been the development of a full range of managed funds products and services based around securities trading.

Since 31 December 1999 the Bank’s funds under management achieved good growth in what was a difficult environment for investments products, and by period end these funds stood at $818 million, an increase of 63%. The Bank’s managed funds were among the fastest growing in the industry.

The growth in managed funds was not achieved at the expense of the Bank’s term deposits, which increased by 21% to $5.1 billion over the 12 months.

Please note: This result is for ASB Bank Limited only. The results of the ASB Group’s subsidiary, Sovereign Limited, will be released on 14 February 2001.

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