BNZ annual earnings gain as fatter loan book boosts income, bad debt charges shrink
By Paul McBeth
Nov. 2 (BusinessDesk) - Bank of New Zealand's annual earnings rose 7.9 percent as the lender's expanding loan book fattened income at skinnier margins while the dairy sector's recovery this year cut bad debt charges.
Cash earnings, the favoured measure of the Australian owned banks, rose to $983 million in the 12 months ended Sept. 30 from $911 million a year earlier, the local unit of National Australia Bank said in a statement. Net interest income increased 2.1 percent to $1.79 billion while impairment losses dropped 31 percent to $83 million, underpinning the increased earnings even as net interest margins shrank 13 basis points to 2.06 percent and the cost-to-income ratio expanded 108 basis points to 40.3 percent. Net profit rose a more modest 2.6 percent to $937 million due to $63 million of unrealised losses on financial instruments.
"Our continued focus on our priority segments has delivered further market share growth in our core business and home lending segments," chief executive Anthony Healy said in a statement. "It has also been pleasing to see the recovery of the dairy sector which has delivered improving on-farm cashflows."
Parent NAB announced an executive swap at BNZ today, with Healy set to return to Melbourne next year where he will take up the chief customer officer business and private banking role at the Australian group from Jan. 1, switching places with Angela Mentis who will take over as the reins in New Zealand. NAB has used New Zealand as a testing ground for higher hones with group chief Anthony Thorburn a former BNZ boss, just like his predecessor Cameron Clyne.
NAB increased cash earnings 2.5 percent to A$6.64 billion on a 1.8 percent increase in net interest income to A$13.17 billion. The board declared a fully-franked final dividend of 99 Australian cents per share, taking the annual return to A$1.98.
The Australian lender's New Zealand lending division, which doesn't count BNZ's capital management and trading operations, expanded gross loans 6.7 percent to $79.1 billion. Of that, mortgage lending rose 6.6 percent to $37.4 billion and business lending climbed 72 percent to $40.4 billion.
The unit's operating costs rose 1.7 percent to $882 million, even as BNZ reversed last year's increase in headcount, with full-time equivalents dropping to 4,732 as at Sept. 30 from 4,963 a year earlier.
The bank continued to shrink its physical branch network with 158 outlets at the balance date, down from 171 a year earlier, while hiking the number of automatic teller machines to 549 from 478.
Healy said the bank was changing its shape based on the demands of its customers.
"This is an accelerating shift that is guiding our investment agenda and our areas of strategic focus," he said. "Over time, this will also deliver productivity benefits, and allow us to continue to grow revenue and enhance shareholder returns."
That's a group-wide strategy which NAB anticipates will drive up annual costs 5-to-8 percent in 2018, keeping expenses broadly flat in the following two years when restructuring costs are ignored.
As a result, NAB plans to strip out 6,000 roles through automation, while creating 2,000 new jobs. That net reduction of 4,000 is roughly 12 percent of NAB's 33,422 full-time staff as at Sept. 30. That's expected to cost the bank A$500 million to $800 million in an effort to generate savings of more than A$1 billion by 2020.
The ASX-listed shares last traded at A$32.88, and have increased 7.2 percent so far this year, outperforming the remaining four pillars of Australia's banking sector, with Westpac Banking Corp up 1.8 percent, Australia & New Zealand Banking Group down 1.1 percent and Commonwealth Bank of Australia falling 5.8 percent.