ASB books a loss on sale of Aegis

ASB Bank's first-half net profit fell 5 percent, mostly reflecting a loss on the sale of its funds administration business and a flat underlying result.

Wednesday, February 12th 2020, 12:14PM

by BusinessDesk

Vittoria Shortt

The bank reported a net profit of $599 million for the six months ended December, including a $28 million loss from selling Aegis last year, compared with $630 million in the same six months a year earlier.

ASB said its owner, Commonwealth Bank of Australia, had invested a further $2.5 billion in common equity "in anticipation" of the Reserve Bank of New Zealand's additional capital requirements announced late last year.

The RBNZ has given the four major banks, of which ASB is one, seven years from July to lift their minimum common equity to 13.5 percent of risk-weighted assets and total tier 1 capital to 16 percent from the current minimum of 8.5 percent.

In the presentations of its results, CBA said ASB will need an additional $3 billion of tier 1 capital with $2.5 billion of that having to be common equity.

CBA reported a 34 percent jump in net profit to A$6.16 billion for the latest six months, including an A$1.69 billion profit from selling its funds management business.

CBA's results also show that its cumulative spend on remediation costs stemming from Australia's royal commission into financial services and other regulatory actions reached A$2.2 billion in the latest six months and that it realised a loss of A$231 million from its New Zealand hedge.

ASB chief executive Vittoria Shortt said her bank's results were consistent with a lower growth operating environment.

"Against the backdrop of a stable economy, we're mindful of a cautious business sector and uncertain global outlook," Shortt said in a statement.

"A key feature of the past six months has been the low interest rate environment with rates dropping to historical lows and we're conscious that, while low interest rates are good news for borrowers, for many of our customers with savings it creates a real challenge."

ASB's net interest margin fell 10 basis points to 2.13 percent in the six months compared with the year ended June, reflecting the impact of lower interest rates on deposit margins but that was offset by a 51 percent drop to $22 million in charges against profit for bad loans.

"Credit quality remains sound. In terms of the rural sector specifically, improvements in commodity prices combined with many rural customers focusing on paying down debt, has seen a marked reduction in rural impairments," Shortt said.

CBA's results also show that NZ dairy lending is the group's largest agricultural exposure, accounting for A$7.3 billion of the A$22.6 billion agri portfolio at Dec. 31, down from A$7.6 billion in June last year and A$7.7 billion in December 2018.

But the quality of that lending is going up with troublesome and impaired dairy assets easing from 5.7 percent of the portfolio at Dec. 31, 2018 to 4.5 percent in December last year.

The percentage of the portfolio actually impaired fell from 4 percent to 2.5 percent over that period.

The New Zealand bank's cost-to-income ratio rose 220 basis points to 36.7 percent with operating costs growing at a faster 7 percent pace than the 1 percent rise in operating income.

Shortt said that reflected both low interest rates and "our ongoing strategic investments in our people, digital and risk capabilities."

CBA's presentation showed ASB contributed 12.9 percent of group net profit and that its market share of NZ home loans fell 20 basis points to 21.5 percent between June and December. Its share of NZ customer deposits rose 10 points to 17.8 percent.

Its share of business lending fell 20 basis points to 15.2 percent, as did its share of NZ retail assets under management.

Tags: ASB

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