ASB records $1b profit for first time

ASB has recorded a profit of $1.07 billion for the year to June, despite its interest margins coming under pressure as more customers broke their fixed-term loans and funding costs increased.

The result was up 17 per cent on the year before and is the first time it had crossed the $1b mark.

Chief executive Barbara Chapman said it was a big achievement for the bank.

‘‘I’m immensely proud of the milestone the team has achieved this year.’’

It was driven by lending and deposit growth, against a backdrop of an uncertain global economy, volatile offshore funding costs and pressure on margins.

‘‘Over the past year, we have remained focused on delivering sustainable, diversified balance sheet growth across our key customer portfolios,’’ she said.

‘‘All our business units performed well and we continue to experience sustained momentum, despite some external headwinds and a rapidly evolving financial services market.’’

Home loans increased by 7 per cent from 2016, while business, commercial and rural lending grew 11 per cent.

Customer deposits grew 6 per cent, in what ASB said were highly competitive conditions.

The bank’s net interest margin - the difference between what it makes on loans and has to pay for deposits - dropped 15 basis points.

‘‘This reduction was driven by a combination of increased funding costs and higher net costs relating to customers breaking fixed rate loans,’’ Chapman said.

It was becoming more expensive to source funding from overseas, she said.

Its loan impairment expense, which covers loans that go into default or fall behind in payments, had dropped as the dairy sector recovered, she said.

She said the bank’s cost-to-income ratio of 35.8 per cent had improved 140 basis points over the year.

‘‘Thanks to our strategic focus on productivity, we have succeeded in containing costs, simplifying our processes and improving efficiency.

‘‘Ultimately this allows us to invest in providing exceptional experiences to customers across our business, whether they choose to interact with us in person or digitally.’’

More customers wanted self-service options, she said, which had prompted the bank to invest in new digital offerings, such as online re-fixing.

This means customers no longer require staff assistance to re-fix their home loan rate.

ASB was keeping an eye on how customers wanted to interact and adjusting its offering so that it was in the right places, Chapman said, whether that was branches, rural bankers or commercial bankers in hubs. ‘‘It all changes over time.’’ Chapman said she expected offshore market volatility to continue over the next year.

New Zealand’s economy was still performing well, although the upcoming election had slowed growth in some areas, such as the housing market.

Chapman said the Reserve Bank’s restrictions on investors has cooled the Auckland property market but there was an underlying shortage of supply that would keep prices up.