Tax credit boosts BNZ profits despite underlying profit drop

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Bank of New Zealand's December quarter net profit rose, thanks to a tax credit as a result of its settlement with the Inland Revenue Department over its structured finance transactions.

Thursday, February 25th 2010, 2:57PM 1 Comment

by Jenny Ruth

The profit rise was despite a sharp fall in net interest income while its share of the mortgage market slipped.

BNZ's net profit for the three months ended December rose 4.2% to $271 million, boosted by an $83 million tax credit. On December 23, BNZ agreed to pay 80% of the tax owed as a result of the High Court ruling last August against it on its structured finance transactions.

BNZ had provided $661 million against profit for the year ended September against its tax bill.

The bank's interest income plunged 34.4% in the three months but its interest expense fell an even greater 40.9%, leaving net interest income down 19.2% at $311 million.

BNZ's charges against profit for bad loans rose to $43 million compared with $35 million in the same three months a year earlier. Only $5 million of the latest charges related to mortgage lending.

The bank's mortgage book grew $129 million to $25.64 billion in the December quarter, accounting for only 8.3% of new mortgage lending by registered banks, based on Reserve Bank figures.

That meant BNZ's share of mortgages held by registered banks slipped to 15.81% at December 31 from 15.88% at September 30. BNZ had a further $2.08 billion in off-balance sheet mortgages at December 31, mortgages approved but not drawn down, compared with $2.19 billion at September 30.

The proportion of mortgages with loan-to-value-ratios (LVRs) above 80% rose slightly to 10.4% from 10.3% three months earlier.

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