SBS Bank lifts annual profit 37%

Expansion of building society’s loan book in Auckland helps offset low interest rates

SBS Bank, the country’s biggest building society, boosted annual profit 37 per cent as the licensed lender ramped up lending in Auckland and to residential property investors, while low interest rates trimmed its retail borrowing costs.

Net profit rose to $27.4 million in the 12 months ended March 31 from $20m a year earlier, the Invercargillbased bank said.

Total lending expanded 19 per cent to $3.41 billion, with residential lending up 21 per cent to $2.68b. Impairment charges shrank to $10.8m in the year from $13.2m in 2016.

SBS boosted its property investment loans 34 per cent to $715.8m, while also lifting its exposure to Auckland, where lending jumped 38 per cent to $1.13b.

That expansion of the loan book helped offset a low interest-rate environment crimping returns, with interest income largely flat at $194.8m.

At the same time, that helped cut what SBS paid retail depositors hold- ing redeemable preference shares — the bulk of the bank’s funding profile — which fell 6.2 per cent to $104.3m. Retail deposits rose 8.8 per cent to $2.98b from a year earlier.

“There is a sense that the housing market has become ‘too hot’ in some regions to be sustainable. For SBS, our impairments are low and growth targets are realistic and manageable,” chairman John Ward said in the annual report.

“Loan-to-value ratios are being applied on a macro scale but we continue to live by the historic values of this entity and we are still enthusiastic about supporting first homeowners wherever possible.”

The Reserve Bank has been trying to take the heat out of Auckland’s housing market for several years, first introducing loan-to-value lending restrictions on mortgages with small deposits in 2013, and two years later imposing limits on loans to Auckland property investors. The central bank is now considering the addition of debt-to-income ratios to its suite of macro-prudential tools.

SBS has been diversifying its business in recent years, buying a 50 per cent stake in Staples Rodway Asset Management, and controlling stakes in Funds Administration New Zealand, Southsure Assurance and Finance Now.

Chief executive Shaun Drylie said the lender was investing in new technology, staff development and branch upgrades as part of its strategy to make banking easier for its members.