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Cooperative Bank profit drops 8.7% after cutting fees

By Paul McBeth

May 27 (BusinessDesk) - Cooperative Bank posted an 8.7 percent decline in annual profit as the minnow lender cut $5 million in fees charged to its owner-customers.

Net profit fell to $9.6 million in the 12 months ended March 31, from $10.5 million a year earlier. That's its smallest profit since 2015. However, the bank still paid an unchanged annual rebate of $2.1 million to its customer-owners. The lender added 14,700 customers in the year and now has 160,000. Of that, it has 81,000 active digital customers.

"While lowering our fees was an important thing to do as a bank that exists for the benefit of its customers, it has resulted in a lack of earnings growth and return on assets continues to be lower than is desirable," chair Brendan O'Donovan and chief executive David Cunningham said in the annual report.

"Greater earnings will generate the capital necessary for the bank to continue to grow, will give us the financial means to provide even greater benefit to our customers and will provide increased resilience for periods where economic conditions turn against us."

The bank lifted its total capital ratio to 17.1 percent from 16.8 percent a year earlier, well above the minimum 8 percent ratio required by the Reserve Bank. Including its retained earnings for the March year, Cooperative Bank's common equity tier 1 capital ratio was 14.6 percent, up from 14.1 percent and more than three times the 4.5 percent minimum.

The Reserve Bank wants to impose a 15 percent ratio for common equity tier 1 capital on the smaller banks, something they say will threaten their future growth, especially if they can't access quasi-equity in meeting that threshold.

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O'Donovan and Cunningham said irrespective of where the debate settles, the most important aspect of the capital rules is that they provide a level playing field for all banks. The current rules give the large Australian-owned banks a substantial advantage.

"The RBNZ's current proposals move closer to a level playing field and in that sense are a positive step," they said.

Cooperative Bank's gross loans grew 7.3 percent to $2.47 billion in the March year, outpacing the 6 percent pace across the banking sector. Net interest income rose 12 percent to $63 million. Provisioning for impairments increased to $6.2 million from $4.8 million a year earlier.

The lender's loan book largely consists of residential mortgages, with gross mortgage loans of $2.28 billion and $185.6 million of non-mortgage loans. Gross impaired assets totaled $2.7 million, or 0.11 percent of gross loans, compared to $1.9 million, or 0.09 percent, a year earlier.

The former PSIS refreshed its strategy in the March 2018 financial year, embracing new technology as the majority of its customers interact with the bank through digital channels.

O'Donovan and Cunningham today said the bank is still investing in digital channels, which are the main way customers interact with the bank. The bank invested $3.1 million in new computer software, down from $3.5 million in the 2018 year.

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