Home loan lending takes lower prominence at ASB
ASB has been growing its home loan book at a slower rate than the market and is looking for other parts of the business to continue its profitability increases.
Thursday, August 13th 2015, 10:07AM 
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ASB chief executive Barbara Chapman says the bank’s $859 million profit for 12 months to June 30 was a “good solid” performance from across the business.
The bank reported that net profit after-tax was up $53 million to $859 million compared to last year.
Chapman says it was a “good performance from our retail business and good growth from corporate, commercial and rural business and funds under management.”
“It’s very much across the board.”
She acknowledged that the bank’s market share in home lending had decreased and that ASB hadn’t been growing its lending book at the same rate a market growth.
This slower growth rate was “deliberate” she said.
“We’ve been keeping an eye on some of those deals in the market and it has been such a competitive period that there’s been deals and pricing that we’re not prepared to match.
“While we have been prepared to look after our customers there have been deals we’ve been prepared to walk away from,” she said.
“We’re very consciously looking at what is a fair return on a home loan and there are just some deal we won’t do.”
In its forecasts the bank is predicting a slow down in credit growth. While it is forecast to be 5.6% in 2015, the numbers fall to between 3.5% and % in 2016 and between 2.5% and 4.5% the following year.
Slower credit growth combined with borrowers moving from floating rates to lower margin fixed rate home loans will put pressure on bank profitability.
Chapman says that has been “forecasted into our plans” and ASB will look to offset this trend by focussing on other product classes such as corporate, commercial and rural banking.
“It’s not unexpected that margins will go down in this part of the cycle,” she says. “We’re diversifying to keep the result coming through.”
The numbers
- ASB's home loan book grew 5% over the June year to $43.7 billion, and business and rural lending grew 14% to $20 billion.
- Net interest margin rose 6 basis points to 2.44%, which the bank attributed to favourable funding conditions.
- The bank's expense to income ratio fell 30 basis points to 38.6%, due to productivity improvements and cost cutting.
- Loan impairment expense was up 59% to $89 million.
- Total loans increased $4.7 billion, or 8%, over the year to $65.4 billion.
- Total deposits grew faster, by $5.8 billion, or 13%, to $50.1 billion.
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I would like to say "independent" but that would be incorrect. When will the rumour that Sovereign Home Loans will be included in ASB in its full be come to fruition? Nick and his fellow BDM's have done an excellent job in carving a niche with mortgage brokers. Sovereign, the drums have been beating for some time on your dropping share of the adviser with choice risk market share. Do ASB and/or Sovereign really care long term about people like me that believed them when they said " we are your partner for ever"?
Even though I am part of Sovnet my risk business is now split between two of their competitors that have a history as long as Sovereigns but who still appreciate that I wish to have product suppliers that are dependent only on brokers and do not have an owner that competes vigorously against me. I remain in Sovnet so I can use their Trail Commission and the excellent Go Home Loan.
I have some very strong relationships with many people in Sovereign but they have/are testing me.
Ciril.