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ASB Continues 20% Plus Market Growth

Media Release
August 10, 2005

ASB Continues 20% Plus Market Growth

Business, Rural and Home Mortgage Lending All Reach Record Levels

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

Increasing preference for ASB as a business and rural banking partner, and continued leadership as a home mortgage lender, assisted the Bank to increase its after tax operating profit by 21% to $382.8 million for the 12 months ending 30 June 2005.

The year was one in which the Bank continued to increase business across a number of fronts, and the combined contribution has seen ASB grow at a rate faster than the market.

ASB increased its total advances during the year by 21% to stand at $35.0 billion by year end. Total assets at year end were up 17% at $38.8 billion.

In the past decade we have been increasing our focus on the business and rural markets while maintaining our stronghold on the home mortgage market, and the benefits of this strategy are flowing into our profit performance. While personal advances are up 19% and remain the cornerstone of our operations, the growth in commercial and business lending at 23% and rural lending at 22% were key drivers behind the Bank’s overall growth and strong performance.

In addition, excellent contributions to profit came from our corporate, securities, wealth management and financial services operations.

ASB continues to fund a major portion of its operations from personal and business savings and investments, and total deposits at year end stood at $32.0 billion, up 21%. Personal banking funding was up 12%, business funding up 21% and rural funding up 39%.

The Bank’s operating income at $1.049 billion exceeded $1 billion for the first time. Operating income was made up of net interest earnings of $781 million, up 14%, and other income of $268 million, up 8%.

The interest rate margin declined from 2.27% to 2.17%, while earnings from transactions and service fees were up 8.0%, a reflection of ASB’s growing customer numbers.

Taxation expense was $180 million, up 18%, and debt provisions at year end stood at $132 million, up 13%.
Operating expenses for the year increased by 5% to $470 million although, as a result of process efficiencies, the Bank’s total operating expenses ratio to total operating income improved to 44.81% from 47.65%.

Funds under management sold through the Bank channel reached $1.8 billion, an increase of 12% from 2004.

The mortgage price war between banks during the year saw ASB increase lending volumes and market share. It also accelerated the move by borrowers from floating mortgage rates to fixed lending rates, particularly the two-year term.

ASB’s experience is that home mortgage borrowers appreciate that cost of interest over the life of the loan, flexibility to make modifications as their circumstances change, and customer service are more important to them than the headline interest rate.

Among initiatives undertaken by ASB during the year were the introduction of:

- The country’s first two factor authentification for Internet banking – Netcode

- An Internet based savings account - Fastsaver. In recognition of the cost efficiency of the service, this account pays a higher rate of interest on all balances. At year end, funds in the account stood at close to $2 billion

- A telephone service which provides financial information and advice to the blind and visually impaired

- New leading edge branches featuring interactive facilities such as Internet kiosks, fast deposit areas, money changing machines and central runways linking all areas

- New Zealand’s largest preference share offer, which raised $350 million. Proceeds will be used to fund ongoing growth

The University of Auckland’s Residential Bank Customer Survey was last conducted in 2003, at which point ASB had topped satisfaction ratings amongst the major banks for six consecutive years.

AC Nielsen’s Consumer Finance Monitor continuously tracks a range of market measures, reported every quarter. For Quarter 1, 2005, the latest quarter available, ASB was rated as:

-New Zealand’s favourite bank of all major banks – on 17%

- The bank most people would recommend of all major banks – on 15%

- First equal in satisfaction ratings for Internet banking of all major banks – on 90% and

- First in satisfactions ratings for automated telephone banking of all major banks – on 91%

The international “Banker” magazine also rated ASB New Zealand Bank of the Year for the third consecutive year. Criteria counting towards this award included growth, service leadership and providing value to customers.


Consolidated Performance in Brief

For the year ended 30 June 2005 2004 2003 2002 2001

Interest Income 2,686.3 2,098.7 1,899.3 1,500.7 1,473.9
Interest Expense 1,905.6 1,411.1 1,282.4 992.3 1,016.5
Net Interest Earnings 780.7 687.6 616.9 508.4 457.4
Other Income 268.1 249.2 233.9 215.3 187.2
Total Operating Income 1,048.8 936.8 850.8 723.7 644.6
Debt Provisions Expense 15.8 20.8 24.8 18.0 13.5
Total Operating Income after Debt Provisions Expense 1,033.0 916.0 826.0 705.7 631.1
Total Operating Expenses 470.0 446.4 407.2 371.0 351.0
Net Surplus before Taxation 563.0 469.6 418.8 334.7 280.1
Taxation 180.2 152.8 140.8 110.0 96.7
Net Surplus after Taxation 382.8 316.8 278.0 224.7 183.4

Total Assets 38,798.9 33,047.7 27,537.9 24,249.6 20,021.7
Advances 34,978.2 28,788.8 22,297.4 19,031.9 16,173.5
General Provision 123.3 108.0 88.8 71.3 59.3
Specific Provisions 8.7 8.8 9.5 6.8 6.8
Total Liabilities 36,527.7 31,452.2 26,228.0 23,216.8 19,202.0
Deposits (includes Amounts Due to Other Banks) 36,049.9 30,832.0 25,620.5 22,680.4 18,762.8

Shareholder's Equity at End of Year 2,271.2 1,595.5 1,309.9 1,032.8 819.7
Dividends: Ordinary 43.0 25.0 195.0 10.0 150.0
Perpetual Preference 16.1 9.7 5.6 - -
Non-Cumulative Preference - - - - 3.1

Return on Ordinary Shareholder's Equity 23.53% 24.51% 25.43% 24.26% 22.30%
Return on Total Average Assets 1.07% 1.05% 1.07% 1.02% 0.99%
Net Interest Margin / Total Average Assets 2.17% 2.27% 2.38% 2.30% 2.46%
Total Operating Expenses / Total Operating Income 44.81% 47.65% 47.86% 51.26% 54.45%
Growth in Total Assets 17.40% 20.01% 13.56% 21.12% 16.54%

Shareholder's Equity as a % of Total Assets 5.85% 4.83% 4.76% 4.26% 4.09%
Tier One Capital as a % of Total Risk Weighted Exposures 9.68% 8.22% 8.12% 7.41% 7.25%
Total Capital as a % of Total Risk Weighted Exposures 10.29% 10.18% 10.26% 9.77% 10.07%

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