ASB profits up; Not worried about Auckland house prices
Growth in its lending book has helped ASB report a sixth-straight annual profit increase while net interest margins have been squeezed.
Wednesday, August 10th 2016, 1:33PM
The Australian-owned bank reported annual net profit after tax was up 6% to $913 million, for the 12 months to June 30 compared to $859 million last year.
Overall loans were up by 10% to $72.08 billion. ASB has around 21% market share in home loans and the growth in this part of the business has close to system growth.
ASB chief executive Barbara Chapman said home loans were up 8.8% compared to system growth of 8.6%.
She says ASB’s market share has been “pretty flat” over the past five years.
“We are navigating our way cautiously through the interest rate environment.”
Chapman says in the past when the Reserve Bank has introduced lending restrictions the market has “quietened down then go back to the levels before.”
She says it is too early to call if that is what will happen this time, however she did say that in all likelihood the new restrictions “will impact on the market and that is a good thing.”
Chapman didn’t want to speculate on what other restriction could be introduced but she wasn’t that keen on limiting debt to income ratios as had been discussed.
“A lot of thought would need to go into what income is. It is not an easy thing to piece together.”
She said will Auckland house prices were around nine times income, that was similar to Melbourne and other cities like Sydney, Vancouver and London had higher multiples.
“It’s difficult to have a view of what’s right and what’s wrong.”
Chapman said ASB’s share of lending in Auckland was down over the past 12 months, however she “didn’t want to share how the mix has changed.”
She isn’t worried about the Auckland market: “I am very comfortable with where the Auckland housing market is at.”
“The fundamentals don’t suggest any boom bust scenario,” she said. Interest rates are low, employment is good and immigration is strong.
Housing arrears good
The bank’s loan impairment expense was up 6% on last year to $130 million – due to increased provisions, particularly in the dairy sector. Champan said while ASB had increased provisioning in the diary sector, this was partly offset by improved home loan arrears.
She said with the currently buoyant housing market borrowers could always sell up if they got into trouble, hence the low arrears.
ASB has changed the way it accounts for fixed rate prepayment recoveries. Theres have been reclassified from other income to net interest earnings to align with market practice.
Like other banks ASB is seeing net interest margins squeezed. While lending was up 10%, deposits only grew by 5% to $54.70 billion. Overall, cash net interest margin decreased by six basis points to 2.32%.
The bank attributed this to a highly competitive environment and the continued popularity of lower-margin fixed rate mortgages.
Chapman said ASB had “achieved this result against the backdrop of a highly competitive market and some significant headwinds in the form of global market volatility and fluctuating commodity prices."
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