10 November 2004 – for immediate use, released in conjunction with National Australia Bank Group 2004 profit announced
Bank of New Zealand Reports Solid Underlying Performance for 2004
Bank of New Zealand today announced a solid result for 2004. The Managing Director, Peter Thodey, said that Bank of New
Zealand’s retail banking – which includes personal financial services, agribusiness, business banking, and credit cards
– continued to perform strongly with underlying after-tax profit of $370 million, up 6.6% on the 2003 year ($347m).
Mr Thodey said the result reflected several strategic decisions that Bank of New Zealand had made, including the
decisions to make its home loans increasingly competitive and attractive to customers, and to invest heavily in the
business, including new products and capital equipment, and in continuing to improve the quality of service to
customers. Bank of New Zealand has also held down fees.
“The cost of those investments is apparent in the result that is being released today. Nonetheless, those investments
have produced tangible results for the business, including growing market share in several markets and continued steady
improvements in Bank of New Zealand’s service quality. Customers and staff have seen the positive results of those
decisions throughout the year.”
The underlying net profit after-tax for the total Bank, which includes retail banking, wholesale and corporate banking,
and fleet management, was $549m, up $1m (+0.2%) on 2003. Abnormal items took the net profit after-tax to $471m.
Mr Thodey said highlights for Bank of New Zealand in 2004 included:
- continued growth in home lending, with Bank of New Zealand’s market share up to almost 16% in late 2004, with Bank of
New Zealand winning $582m, or 20%, of new home lending business in the September 2004 quarter (based on Reserve Bank
- Bank of New Zealand recognised as the most-improved of the major banks in customer service in 2004, with two-thirds of
Bank of New Zealand customers rating the service they receive as very good or excellent (ACNielsen Consumer Finance
Monitor, September quarter 2004)
- strong response to Bank of New Zealand’s initiatives in the youth market, notably Smart Money (launched in April
2004), with Bank of New Zealand increasing its market share during the year
- recognition of Bank of New Zealand’s service through its call centres with Bank of New Zealand winning the supreme
award for large customer contact centres, across all industries, in the 2004 Customer Relationship Management Contact
- overwhelmingly positive response from customers to Bank of New Zealand’s decision to reintroduce branch managers to
its 178-branch network so as to raise the profile of the Bank in the community and to maintain the improvement in
in-branch service. Branch managers were reintroduced from late 2003, beginning in the South Island
Mr Thodey said Bank of New Zealand’s direction in retail banking in 2005 would be largely the same as that in 2004.
“We will continue the steady improvement in customer service and we will maintain our focus in key markets, notably home
loans, the youth sector, and in small and medium-sized enterprises (SMEs).
“In home lending this year our aim was to deliver consumers the best possible deal in the market,” Mr Thodey said.
“That led us to cut rates where we could, the most obvious example of that being the Unbeatable campaign, in which we
have maintained the most competitive fixed two-year rate in the market among the major banks. None of the major banks
have been able to match our fixed two-year rate of 7.15%.
“One of the reasons Bank of New Zealand has been able to deliver these lower home loan rates is because we sell our home
loans directly; we won’t allow brokers to sell them for us. Our competitors pay brokers commissions of up to 1% to
acquire the loans. Those commissions make it difficult for the other major banks to compete with us.
“We have also been growing our market share in mortgages so the impact of our competitive pricing has been balanced by
growing volume.” Bank of New Zealand’s net interest income for the year was up $26m to $894m.
Mr Thodey said Bank of New Zealand – which is acknowledged as New Zealand’s leading business bank - would continue its
focus on the SMEs market, a market that the Bank regarded as critical.
“We know that the key to serving SME customers is a combination of well-priced products and quality service. That’s the
combination we bring to the market.“
The net after-tax profit for the entire Bank, including abnormal items, is $471m. The abnormal items included in the
2004 results totalled $78m and relate primarily to writedowns and charges relating to software assets.
The largest component of the writedowns and charges related to the ISI (Integrated Systems Implementation) project,
under which SAP software modules have been implemented throughout the National Australia Bank Group. ISI is an aspect of
a global strategy, under which the Group’s businesses are operating common and integrated software for back-office
functions. Notwithstanding that, a decision has been made to revise the value of the ISI assets to more accurately
reflect their value to the respective local banking operations.
Bank of New Zealand’s underlying returns on equity and assets for 2004 are 23%, and 1.43% respectively. “These returns
represent outstanding results from the point of view of shareholders,” Mr Thodey said.
Other operating income was down $7m to $540m. “The slight fall in other operating income reflects the Bank of New
Zealand’s decision to hold its fees at current levels in 2004,” Mr Thodey said.
The underlying cost-to-income ratio was up 1.8% to 47.7%, partly reflecting the scale of investment by Bank of New
Zealand in new products and capital equipment in the last two years.
“In the last two years we have developed and delivered several new products,” Mr Thodey said. “We have also installed a
$25 million state-of-the-art technology system in our branches and we have refurbished branches and opened new ones at a
“We’re also investing in growing the capability of our staff to deliver quality service and in the leadership that is
required to do that.
“The costs of these investments, in products, capital equipment, and people, are reflected in our cost-to-income ratio.”