ASB posts record annual profit, CEO says borrowers ‘doing well’ despite higher interest rates

ASB’s annual net profit hit a new high, approaching $1.5 billion, meaning the bank has posted record annual profit in 12 of the past 13 years. The only exception was 2020.

The bank’s after-tax net profit in June rose $150 million, or 11%, to $1.471 billion from its previous record high of $1.321 billion. in the year of June 2021.

ASB’s total operating income increased $279 million, or 9%, to $3.251 billion, with net interest income up $212 million, or 9%, to $2.599 billions of dollars.

Operating expenses rose $34 million, or 3%, to $1.175 billion, as the bank added 157 full-time equivalent employees, for a total of 5,879. The increase was spurred by growth aimed support technology investments.

ASB’s annual net interest margin was unchanged at 2.22%, with a cost/income ratio down 190 basis points to 37.1%.

Loan impairments were $41 million versus a reversal of $5 million last year. This increase was attributed to higher collective provisions reflecting emerging risks such as inflationary pressures and rising interest rates.

“We see no cause for concern”

Despite significant increases in mortgage interest rates over the past year and the highest consumer price index inflation in 32 years of 7.3%, ASB CEO Vittoria Shortt has told interest.co.nz that the bank sees no significant increase in loan arrears for businesses. or personal customers. Only 0.19% of the bank’s loans were at least 90 days past due as of June 30, up one basis point year on year from 0.18%.

With the official cash rate up 225 basis points since October, Shortt says around a third of ASB’s home loan customers are benefiting from new higher interest rates of around 1% (100 basis points) .

“And what we’re seeing there is that they’re all doing well. We’ve called our customers to check in with them, we’ve also looked at a lot of our data and metrics, and we’re not seeing all areas of concern.So the question is why is this?And we blame that on the low LVRs [loan-to-value ratios]and we also had a maintenance test rate of 6.45%, which is now 7.85%,” says Shortt.

“So it’s given customers a real buffer for rising interest rates, but also for the growing inflationary impact of households. That’s how affordable lending principles are supposed to work and we’re seeing them work. “

Still, Shortt says SBA staff are watching borrowers closely for signs of stress.

“We continue to research. We strive to understand both first-hand by talking to our customers, but also by looking at different analyzes and stress tests on our own. [lending] book to see where we might find it,” Shortt says.

Meanwhile, ASB says lending rose 5% to $105 billion, with home loans up 6% from 12% in June 2021 to $73.624 billion. Total deposits increased 8% to $85 billion.

Figures released by ASB’s parent company, Commonwealth Bank of Australia (CBA), show ASB’s mortgage market share unchanged year-on-year at 21.6%, its share of deposit market up 18.3% to 18.2% and its corporate loan market share down to 16.9% from 17.3%.

ASB paid $975 million in dividends in the year to June, compared to none in its 2021 fiscal year when Reserve Bank Restrictions on Dividends were in place due to the Covid-19 pandemic.

The bank’s Common Equity Tier 1 capital ratio, as a percentage of risk-weighted exposures, fell 40 basis points year-on-year to 12.3%.

‘We are here to help’

In ASB’s statement, Shortt says that in an environment where interest rates, inflation and the cost of living are top concerns, ASB “continued to identify ways to help customers through uncertain times”.

“We know the rising cost of living is keeping New Zealanders up at night, but there are a lot of things we can do together to relieve the pressure. The first and most important step is to talk to each other,” says Shortt.

“Our goal of accelerating the financial wellbeing of all New Zealanders has never been more relevant. We’re here to help.”

Shortt says the ASB waived, refunded and reduced nearly $50 million in fees in the year to June.

She says business customers will “benefit from the rollout of a new cloud-based lending platform” that will simplify the experience for staff and customers.

CBA posted an 11% rise in net profit after tax to A$9.595 billion. CBA’s net interest margin fell 18 basis points to 1.90%, and its Common Equity Tier 1 capital ratio fell 160 basis points to 11.5%.

ABC pays a final dividend of A$2.10 per share, bringing its annual dividend to A$3.85 per share, fully franked, representing a 10% increase and equivalent to 68% of annual cash income .

According to the ABC’s annual report, Shortt’s compensation rose to A$3.65 million from A$2.87 million the previous year.

ASB’s annual net cash profit after tax, its preferred earnings measure, rose $122 million, or 9%, to $1.418 billion. (Note that interest.co.nz focuses on what the big banks describe as their statutory net profit after tax, as opposed to the banks’ preferred measure of net profit after tax. The reasons are detailed here and here).

The SBA press release is here.

The ABC press release is here.

The ABC earnings announcement is here.

The ABC presentation is here.

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