BNZ results highlight strong balance sheet

BNZ results highlight strong balance sheet and continued investment in the business

Solid and consistent performance in a challenging year

Bank of New Zealand (BNZ) has reported solid cash earnings of NZ $524 million for its New Zealand banking operations* in its full year results for the year to 30 September 2010, up 1.4% on the previous year.

Bank of New Zealand CEO Andrew Thorburn said, “The results are a solid and consistent performance in a challenging year for business. BNZ has maintained a focus on ensuring balance sheet strength along with reinvesting in the bank for future growth.”

“The recovery of New Zealand’s economy has been slower than anticipated as it has undergone significant rebalancing in the last year. Deleveraging by businesses has also reduced the demand for credit as businesses delay investment decisions. As a result, overall lending volume growth has been modest.”

Balance sheet strength a strategic priority

Bank of New Zealand continues to strengthen its balance sheet with capital levels well above the regulatory minimums. Tier one capital ratio is at 8.85% and the total capital ratio was 11.81% at 30 September 2010.

While supporting the new bank liquidity policy (BS13), these new requirements have added costs to the business and put pressure on domestic funding with intense competition for retail deposits.

Bank of New Zealand has continued to focus on the importance of customer deposits which grew strongly by 9.7% in the year to 30 September. Deposits from both retail and business customers of $2.5 billion increased BNZ’s deposit market share to 17.6% at September 2010, up from 17.0% in the previous year.

Diversifying and lengthening Bank of New Zealand’s term funding profile has been a strategic balance sheet priority. In line with Reserve Bank’s Core Funding Ratio requirement BNZ has remained well above the minimum ratio of 65% introduced in April this year.

Good performance in a competitive market, and strong credit risk management

BNZ’s net interest margin was 2.16%, up 10 basis points year on year, however this remains well below the levels prior to the global financial crisis. The increase reflected risk repricing along with customers’ preference for variable rate housing products. Margins were offset in part due to pressure on retail deposit margins and higher wholesale funding costs.

In a market leading move BNZ abolished honour and dishonour fees from 1 September 2009. The impact of the initiative has been a reduction in revenue by $23 million in the year to 30 September 2010 which is the main reason for the lower Other Operating Income, down by 7.7% to $442 million.

Asset quality indicators have stabilised and indicate we have reached the peak of the cycle. The charge for bad and doubtful debts is $187 million which is flat year on year and reflects the slow economic recovery. “BNZ’s strong credit risk management and analysis functions have allowed us to take an early approach to assist customers and ensure good asset quality,” said Thorburn.

Bank of New Zealand issues first covered bond in Australasia

In a first for Australasia, Bank of New Zealand successfully completed a domestic covered bond issue of $425 million in June 2010. The issue was an innovative longer term funding offering and represented domestic investors’ confidence in BNZ. Later this year BNZ will be undertaking investor discussions to gauge interest in an international covered bond issue.

“Development of covered bonds in New Zealand is an important new market to create longer term funding sources and reduce reliance on short term international wholesale funding. BNZ supports the Reserve Bank consultation on the introduction of a legislative framework for New Zealand issued covered bonds,” said Andrew Thorburn.

Major investment programme in BNZ’s Retail and Business Centre network

The major investment programme in BNZ’s Retail and Business Centre network costing $195 million over three years gained momentum this year. The transformation of BNZ Retail stores is aimed at creating an open and dynamic environment with 26 store upgrades completed to date. In addition BNZ has launched a dedicated small business hub offering expertise and support for this critical business sector.

BNZ Partners Business Centres are a unique proposition providing business customers with specialist banking services and free access to office and boardroom facilities. Ten new BNZ Partners Business Centres have now opened with 20 more to be completed around the country by the end of 2011.

Andrew Thorburn said, “BNZ’s investment programme is a significant commitment to improve our customer experience and support New Zealand business growth. Customers are impressed with our business centres which they describe as ‘being like a Koru Club without the membership fee or metal detectors’.”

“Our focus on ensuring BNZ’s fundamentals are strong means we are well placed to continue supporting customers and investing in our community.”



Bank of New Zealand is proud to be the bank that:

• Continued to support customers through testing times, in particular this was seen through the recent Canterbury earthquake.
Andrew Thorburn said, “I was proud of the way the bank pulled together to support and assist both staff and customers in the region. In addition to a million dollar package of direct support, BNZ has provided more than $3 million in lending at cost to help business and personal customer’s recovery.”
• Led the market in abolishing honour and dishonour fees;
• Achieved carbon neutrality in July, three months earlier than planned, through a reduction in emissions and the purchase of carbon offsets;
• Was awarded an Excellence Award from ACI Worldwide for BNZ’s Liquid Encryption Number (LEN) to prevent credit card skimming fraud;
• Scored high employee engagement and enablement results on par with high performing organisations and continues to build an outstanding employer proposition;
• Brought back the Southern Cross into our logo;
• Ran ‘Closed for Good’ in November 2009 when 3,500 BNZ employees used one of their two annual volunteer days to work on community projects for a day; and
• Became major sponsor of the New Zealand teams in the Super Rugby competition and is also the new principal partner of Plunket.

New Zealand Banking (includes BNZ Partners, Retail, BNZ Insurance and support units)

BNZ has maintained an AA rating by Standards and Poor’s.

ENDS

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