TSB and SBS banks show divergent trends

The two small New Zealand-owned home lending banks showed divergent trends in the June quarter, one growing its mortgage book while the other shrank.

Monday, August 29th 2011, 5:28PM

by Jenny Ruth

Invercargill-based community-owned SBS Bank's mortgage book shrank $10 million to $1.8 billion in the three months ended June while Taranaki-based TSB Bank's book grew $28.4 million to $2.39 million.

SBS finance general manager Tim Loan says the major reason for his bank's mortgage book shrinking was the fact about 25% of its business is in Christchurch and its customers in that city are paying down their mortgages as they receive their payouts from the Earthquake Commission.

In another contrast, SBS's net interest income grew 13.4% to $16.3 million during the quarter while TSB's rose just 1% to $24.1 million.

TSB says most of its funding comes from retail deposits from its loyal customer base, rather than from the cheaper wholesale market, and competition in the deposits market is holding down margins.

Loan says his bank's growth in interest income mostly reflects last October's takeover of the Hastings Building Society.

In yet another contrast, SBS's charges against profit for bad loans fell 14.9% to $3 million, in line with the improving trend most banks are showing in this area, while TSB Bank's more than doubled to $1 million from $0.4 million.

TSB says it has a relatively small specific provision for impaired loans which is easily distorted by small changes. The increase reflects "the delayed occurrence of impairment due to the extended duration of the economic recovery."

The bottom line comparisons of both banks benefited from the year-earlier one-off tax charges relating to government tax changes. TSB's net profit rose 35.3% to $11.8 million although pre-tax profit fell 9.8% to $16.3 million. SBS's net profit doubled to $3.2 million while its pre-tax profit was down 10.2% because on non-cash changes in the fair value of financial instruments.

The only home-lending bank yet to report its June quarter results is HSBC which has until September 30 to do so.

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