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ASB invests in keeping Kiwis’ finances safe sound and secure

ASB today reported a statutory net profit after taxation (NPAT) of $1,274 million for the year ended 30 June 2019. This represents an 8% increase on the prior year. This included a one-off $46 million gain from the sale of Paymark Ltd.

Cash NPAT was $1,191 million, an increase of 4% on the prior year. Cash NPAT presents ASB’s underlying operating results and excludes items that introduce volatility and/or one-off distortions which are not considered representative of ASB’s on-going financial performance[1].

ASB Chief Executive Vittoria Shortt said the result was the product of a solid across the board performance. “While all parts of the business contributed to the result, growth in underlying profit was more subdued this year, reflecting a backdrop of slowing credit growth in the business and consumer finance sectors.”

Safe, sound and secure

“We are continuing to make significant investments in order to keep our customers and their information safe,” says Ms Shortt. “This focus on financial crimes prevention and cyber security has contributed to an increase in operating expenses of 4%.

“Our long-term financial performance is driven partly by our continued focus on investing in and driving efficiency. Our cost efficiency advantage positions us strongly and allows us to be more resilient and remain profitable in the event of an economic downturn.

“A resilient, secure and efficient banking sector is important for New Zealand’s economy and society. Over the financial year we have further strengthened our balance sheet resilience, increasing our Common Equity Tier 1 (CET1) capital by $0.5bn (to $6.4bn), and lifting our CET1 ratio to 11.4% of Risk Weighted Exposures.”

Investing in the wellbeing of New Zealand

“ASB has a strong heritage of supporting our communities. This began when our founders opened the first ASB branch in 1847, with a focus on helping New Zealand society, and has continually evolved to the significant support that ASB teams and people provide across all our communities today. We are fortunate to have a number of longstanding charitable partners, such as St John, which continues to provide vital services to the community as first responders and through the provision of first aid training to students and other groups.

“We have also continued to build new relationships with organisations like KidsCan. In June we announced a partnership that will see ASB and KidsCan working with 740 low decile schools to deliver essential items to students who would otherwise go without, ensuring they are fed, warm and healthy, so they can focus on their learning.

“Having the opportunity to contribute to the community is important to our people, and is often one of the reasons people choose to work at ASB. With this in mind, earlier this year we were pleased to launch the ASB Volunteer Hours Programme which is designed to give our people the opportunity to get directly involved in helping our communities. ASB employees are entitled to take 12 paid voluntary hours per year to support community groups. This will deliver approximately 60,000 hours of service to New Zealand annually.

“Promoting and championing a workplace where everyone can make an impact and where all our people have the opportunity to reach their full potential remains an important area of focus for ASB. We were extremely proud that ASB, through our Diversity and Inclusion network group ‘Unity’, was named the winner of the Community and Advocacy category at the annual New Zealand Rainbow Excellence Awards in May.

Investing in better customer outcomes

“I am proud of the commitment of our people to delivering good customer outcomes and experiences that make banking simpler, easier and safer,” says Ms Shortt. “We have listened to the feedback from some of our stakeholders around sales targets and incentives and have responded accordingly. This includes reviewing how we remunerate and incentivise our people including the removal of sales targets for frontline staff.

“The current low interest rate environment provides an ideal opportunity for home owners to pay down debt and a big focus for ASB has been on providing customers with the tools to help them achieve this. ASB Home Central helps our more than 230,000 home lending customers manage their home loan online and explore options to get mortgage free faster. With more than 930,000 visits over the financial year to adjust repayment options, many customers have saved tens of thousands of dollars over the course of their home loan,” says Ms Shortt. “As an acknowledgement of the range of tools the Bank has available for its customers as well as the expertise of our home lenders, ASB received Canstar's Bank of the Year – Home Loans award for the second year running. We were also recognised for our work in helping Kiwis into their first homes, winning the Canstar First Home Buyer Award for 2019.

“We have had a particular focus on working with our rural customers to help them make the most of the current low interest rate environment and historically high commodity prices. Encouragingly, we have seen many rural customers focus on paying down debt, and transitioning to more resilient and sustainable business settings.

“Our customers want their banking experience to be simple and seamless, with the knowledge they are using the most suitable products for their circumstances, as they change over time. Our investment in data and analytics has helped us to become more proactive in the way we engage with customers. Through investing in this capability, more than 217,000 customers took an action in FY19 that resulted in them being better off financially.”

Key performance elements

ASB’s cash net interest margin (NIM) decreased by 3bps (to 221bps) on the prior year. The decline in NIM was predominantly driven by higher funding costs and a continued customer preference for fixed rate loans, partly offset by lower costs relating to customers breaking fixed rate loans.

ASB’s impairment losses on financial assets (write-offs and funds set aside for bad debts) increased by 35% (to $108 million). “Overall, credit quality remains sound, notwithstanding a rise in impairment provisions that have been impacted by a change in accounting standards,” says Ms Shortt.

On a cash basis, ASB’s cost to income ratio for FY19 was 35.6%, an improvement of 40bps on the prior year. Operating income growth was 5% while operating expenses grew by 4%. “We have continued to invest significant resources in ensuring we are safe, sound and secure to help us protect the trust our customers and community have placed in us,” says Ms Shortt. “At the same time, we are continuing to invest in our digital and innovation capabilities to reengineer processes, enhance our channels and make it easier and simpler for our customers to bank with us, however they choose to do so.”

Key financial points

• Cash NPAT of $1,191 million, an increase of 4% on the prior year
• Statutory NPAT of $1,274 million, an increase of 8%
• Cash net interest margin decreased by 3bps to 2.21%
• Advances to customers up 6% to $88 billion
• Customer deposits up 6% to $66 billion
• Impairment losses on financial assets increased 35% to $108 million
• Continued momentum in funds management with 13% income growth
• Cost to income ratio (cash basis) of 35.6%, an improvement of 40bps
• Operating expenses increased 4%

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