11 May 2005
For immediate release
Media statement – released in conjunction with National Australia Group half-year result
Bank of New Zealand Announces Steady Profit, Strong Performance in Key Markets
Bank of New Zealand announced a $265 million profit for the half-year ending 31 March 2005. Bank of New Zealand’s Managing Director, Peter Thodey, said the profit, which is $1 million (0.4%) more than the same period last year, reflected continued focus on improving the Bank’s customer proposition and steady growth in market share for the Bank in a highly competitive retail banking environment.
Bank of New Zealand’s focus on passing on the savings it has made by withdrawing its business from the mortgage broker network ensured the success of the Unbeatable home loan campaign.
The success of Unbeatable is revealed in the strong growth in Bank of New Zealand’s home loan share. The Bank’s market share in home loans grew steadily, from 15.7% to 16.2% in 2004 (source: Reserve Bank data). Simultaneously, the Bank improved its performance in service, specifically in branch service where 75% of customers rated branch service as very good or excellent in 2004, which makes Bank of New Zealand the most highly-rated bank for branch service (source: ACNielsen).
Overall, net interest income (NII) increased 11.4% to $478 million relative to the same half-year in 2004, an excellent result. Home lending was a steady contributor to the NII result. While home loan margins were under pressure in the half-year, Bank of New Zealand widened its overall net interest margin for the half-year by four points, to 2.49%, as a result of disciplined margin management across the entire portfolio.
“This result makes an interesting comparison with two of our competitors, both of whom have announced recently an erosion of their interest margins while also losing market share,” Mr Thodey said.
“The doomsayers who say Bank of New Zealand will pay for the home loan price war have to reflect closely today on their views.
“Our market share in home lending has grown and, at the same time, our net interest income is up by 11.4% against the same time last year.
“Critics of our home loan strategy fail to understand the advantage that we enjoy because we own all of our distribution channels. Our major competitors are saddled with paying for an additional distribution channel, namely mortgage brokers. We simply don’t have that cost and it allows us to pass savings to customers.”
Other operating income (OOI) reduced by 7% to $255 million as Bank of New Zealand held or reduced fees in key markets. “Our aim is to remain competitive in key markets, reflecting the intense competition in retail banking,” Mr Thodey said. “In response, Bank of New Zealand has held fees and introduced new products that are cheaper for customers than the ones they replace.”
Products that have performed well for Bank of New Zealand in the last year include Smart Money, which is the major product release in the under 30-year-old market. Bank of New Zealand’s share in the under-30 market grew steadily in 2004 albeit from a low base (from 6% to 8%, 15-29 year-old market, AC Nielsen).
Under the Business First banner, Bank of New Zealand has released a range of highly competitive new products in the small and medium-sized enterprise (SMEs) market, and it has improved service for SME customers with 105 SME specialists working in branches from April 2005.
Bank of New Zealand main bank personal customer numbers were up 35,000 to 440,000 (8.6%) in 2004, the only one of the five main banks to increase retail customer numbers ahead of population growth in 2004 (source: Bank of New Zealand based on ACNielsen/Statistics New Zealand data).
“We haven’t finished here,” Mr Thodey said. “Customers will see more innovative products at competitive prices from Bank of New Zealand over the next 12 months.”
Bank of New Zealand’s expenses increased 8%, to $356 million, as the Bank faced higher compliance costs and moved to invest in infrastructure and new products. In 2004, investments included major refurbishments in the branch network to improve customer facilities, an overhaul of the GlobalPlus products, and improvements to Bank of New Zealand’s 405-machine ATM network.
“Overall, the half-year has been very successful for Bank of New Zealand given the competitive environment and the slowing economy,” Mr Thodey said. “Our market shares have grown steadily in home loans, in the under-30 year old market, and in overall retail banking. We have innovative new products coming on to the market in key segments, and our customer satisfaction and customer numbers are improving. That is the formula for continued success.”
Key data for half year to 31 March 2005 (results for half year to March 2004):
total income: $733 m ($704 m) (+ 4.1%)
- operating profit before provisions (underlying profit): $377 m ($374 m) (+ 0.8%)
- operating surplus before tax: $369 m ($360 m) (+ 2.5%)
net profit after tax: $265 m ($264 m) (+ 0.4%)
net interest margin widened four basis points to 2.49%