ASB profit up strongly

Commonwealth Bank of Australia's New Zealand operations reported a 23 per cent improvement in cash profit in the first half, thanks to a rising net interest margin and growth in market share in rural and corporate lending.

ASB Chief Executive Barbara Chapman told Banking Day the Auckland-based bank chose to sacrifice some market share in the hyper-competitive mortgage market to help protect its net interest margin.

Meanwhile, ASB, which has been relatively weaker than its biggest rival ANZ in rural and corporate banking, grew market share in these higher margin areas to further bolster its net interest margin.

"We're prepared to sacrifice a little bit of (mortgage) share as we've protected and grown our margin over the last 18 months or so, but we intend to be competitive in that market," Chapman said.

SB's share of home loans dropped to 21.7 per cent in the six months to December from 22.1 per cent a year earlier.

CBA's ASB and its New Zealand insurer Sovereign reported a cash net profit of A$435 million, up 23 per cent from the same half a year earlier. The Australian currency profit was boosted by a rise in the New Zealand dollar. Cash profits in New Zealand dollar terms rose by 12 per cent, including nine per cent growth from ASB and a 43 per cent rise from Sovereign, which benefited from relatively low insurance claims and premium growth.

ASB's net interest margin rose 15 basis points to 250 bps in the first half from a year ago, due largely to a rise in deposit margins as international and local funding costs fell. An 11 per cent rise in business and rural lending to NZ$18.8 billion in the first half from a year ago lifted ASB's business lending market share to 11.5 per cent from 10.6 per cent a year ago. It also helped underpin the overall margin expansion.

Elsewhere, ASB sharply increased its dividends after removing uncertainty about its tier two capital levels in discussions with the Reserve Bank, which is the industry regulator.

ASB paid NZ$565 million of dividends in the first half, up from NZ$50 million in the same half a year earlier, and said in the notes to its accounts it would pay a further dividend of NZ$400 million on March 26.

Chapman said ASB's dividend payout ratio over the last two years had been about 20 per cent of profits as it clarified how much of its capital could be tier two capital. This was about half the usual payout ratio of 40 per cent of profits, she said.

ASB had received approval for higher tier two capital levels and relatively lower tier one capital levels, allowing a 'catch-up' of dividend payments and a fall in ASB's tier one capital ratio to 11 per cent from 12.4 per cent a year ago. Total capital fell to 12 per cent from 12.5 per cent.

"We've been running quite high capital buffers at tier one and we've just pulled that back a bit as we got more certainty around the tier two issuance around Basel 3," she said.