Thursday 27 October 2016
Investment delivers strong volume growth for BNZ
Strong performance across small, medium and large business banking and growth in retail, offset by volatility in markets
and debt instruments, has seen Bank of New Zealand (BNZ) report a statutory net profit for its banking group1 of NZ$913
million for the year to 30 September, 2016.
The New Zealand Banking Operations2 saw cash earnings3 increase $13 million year on year with a particularly strong
second half driven by solid revenue growth and a lower charge for bad and doubtful debts.
“Our strategy is delivering for the bank, despite a challenging year in a highly competitive banking environment and
with higher funding costs affecting margins,” said BNZ CEO Anthony Healy.
Key results: (comparisons are to year-end 30 September 2015, for both banking group and New Zealand banking operations)
BNZ banking group1
· Statutory net profit1 of NZ$913 million, NZ$125m less than last year, due to lower trading income in BNZ markets, and
losses on hedging derivatives from both the strengthening NZD and interest rate movements.
· Cash earnings3 decreased by NZ$33 million or 3.4%.
· Common Equity Tier 1, Tier 1 and total capital ratios1 of 10.21%, 10.54% and 12.04%, respectively.
New Zealand banking operations2
· Underlying profit2 increased by NZ$11 million due to higher revenue, partly offset by higher expenses.
· Cash earnings3 showed an increase of NZ$13 million or 1.6% to $836 million, assisted by a lower charge for bad and
doubtful debts reflecting the strength of economic conditions outside the dairy sector.
· Net interest income2 decreased by $7 million or 0.4% as lower product margins were partly offset by higher volume
growth.
· Net interest margin2 decreased by 19 basis points to 2.25% reflecting the competitive market environment, lower
wholesale interest rates and rising funding costs.
· Other operating income2 increased by NZ$26 million or 5.6%, due mainly to increased revenue from the retail wealth
segment and improved revenue from the credit card portfolio.
· Operating expenses2 increased by NZ$8 million reflecting investment in priority segments such as digital, SME, broker
and Auckland.
· Charges for bad and doubtful debts2 decreased by NZ$9 million or 6.7%. Lower specific provisions broadly reflected the
strength of economic conditions. This was partly offset by higher general provisions, being mainly due to the dairy
sector downturn in the first half.
· Average customer deposits2 increased by NZ$3.7 billion or 8.2% with spot balances growing by NZ$4.7 billion.
· Average lending volumes2 increased by NZ$5.0 billion or 7.6% with spot balances growing by NZ$6.1 billion. Average
housing volumes increased by NZ$2.1 billion or 6.6% and business lending by NZ$3.0 billion or 9.2%.
Commentary – Anthony Healy
Digital investment
“Our digital investment is delivering a compelling customer experience, which was acknowledged when BNZ was ranked top
of the banking sector in the SAP Digital Experience report. BNZ is the only New Zealand bank to offer fingerprint login
on both our retail and business banking apps, for both iOS and Android phones.
“Our biggest store is our digital store – the vast majority of our customers transact with us digitally and 89% of
transactions are now either through internet banking or our app – that is 13.2m sessions each month. This is a 21%
increase overall and mobile is up 36%.
“We migrated 500,000 customers to a new online banking platform, and in doing so rationalised thousands of accounts and
products. We encourage our customers to increase their home loan payments through internet banking, and we have a
compelling new feature that shows how a small repayment reduces the term and the interest paid. Since launching this
feature, around 1,600 customers have already cut 7,000 years off their home loans.”
Business banking
“We were awarded Canstar New Zealand’s Best Small Business bank for the sixth year in a row and we continued our
commitment to meeting the needs of these customers by opening a new small business hub in Hamilton and hiring new small
business specialists in Auckland and Christchurch.
“Across SME we’ve seen extremely strong revenue growth of 9.1% year-on-year. Our business banking model is market
leading and our support of regional New Zealand can be seen through our 34 Partners Centres. This support will continue
with the opening of our new BNZ Centre in Christchurch in December.”
Auckland
“Our Auckland strategy has delivered growth within our existing risk appetite. We’ve targeted the housing and SME
segments and both have seen strong volume increases. We continue to play an important role in helping support
infrastructure growth and addressing housing supply issues.”
Mortgage market
“We have retained our market share thanks to a focus on sustainable growth and our re-entry to the broker market has
played a big part of that, with $1.8 billion in home loans written through broker this year. This year we have appointed
four new broker partners: Mortgage Express, Global Financial Services, Kepa and Mortgage Link.
“Housing affordability continues to be an issue, and as long as migration and supply are key factors the recent
loan-to-value restrictions will only have a short term effect. Like all banks, we anticipate that there will be
increased pressure on lending margins in the coming months which will influence interest rates.”
Agribusiness
“We have worked as a true partner to our dairy customers and I believe our management of the downturn has been market
leading. We managed our risks well and took a prudent approach to our dairy lending, making provisioning decisions
early. The outlook could be turning for the positive, but while there is still some uncertainty we will retain our
prudent approach.
“In April, we announced an investment in cloud-based farm accounting software provider Figured Limited, making it easier
for farmers to work with their accountants, farm consultants, and rural bankers.
“The challenges of dairy, which makes up about 57% of our agribusiness lending, have been noted. But it’s important to
acknowledge that many of our other customers in sheep and beef, forestry, kiwi and pip fruit and viticulture have had a
very strong year.”
Contribution to a high-achieving New Zealand
“The expansion of the Community Finance Initiative is a real highlight. We are working in partnership with the
Government and Good Shepherd to offer this service in new areas including Wellington, Invercargill, Whangarei,
Palmerston North and Christchurch. Community finance offers low and no income loans to New Zealanders who typically
don’t meet bank criteria, and have exhausted WINZ options. We estimate that our $700,000 of community finance lending
has saved our clients more than $380,000 compared with borrowing through alternative lenders.”
Capital and Funding Position
BNZ maintains a robust capital structure, with a strong balance sheet that is well funded through diversified and stable
funding sources. BNZ’s Core Funding Ratio (CFR) of 86.07% exceeds the Reserve Bank of New Zealand minimum requirement of
75% as at 30 September, 2016. BNZ’s Common Equity Tier 1, Tier 1 and Total capital ratios of 10.21%, 10.54% and 12.04%,
respectively, as at 30 September 2016 were well above the RBNZ minimum capital ratio requirements of 7.00%, 8.50% and
10.50%, respectively. Collectively, BNZ’s funding and capital position is supportive of BNZ’s longterm senior unsecured
issuer credit ratings of AA/Aa3/AA (S/Moody’s/Fitch).
BNZ’s 2016 capital levels were impacted by the amortisation and redemption of Basel II transition eligible capital
instruments totalling NZ$785m. In October 2016, BNZ strengthened its capital position by issuing NZ$900 million of
mandatorily convertible subordinated perpetual unsecured notes (“Notes”) to its ultimate parent, National Australia Bank
Limited (“NAB”). This new capital instrument qualifies as Additional Tier One capital of BNZ for regulatory purposes.
Subsequent to the Notes issuance, the capital ratios of BNZ for Tier 1 and Total capital would have been 1.48% higher
than those reported as at 30 September 2016.
ENDS