NAB's BNZ nudges up profit
National Australia Bank's Bank of New Zealand first half net interest margin eked out a 3.4 per cent rise in cash profits, while it increased lending 5.2 per cent and kept a tight lid on costs.BNZ's cash profit of NZ$400 million for the half was up from NZ$387 million in the same half a year ago, but down a touch from NZ$401 million in the second half of the year to September 2013.Its net interest margin fell 6 basis points to 2.34 per cent in the first half from the same half a year ago, but stabilised from the second half of the previous year.BNZ, Westpac New Zealand and ANZ's New Zealand operations have all reported net interest margin pressure in the first half because of a shift by customers to lower-margin fixed mortgages from variable mortgages. The Reserve Bank of New Zealand began increasing interest rates in March and borrowers have rushed to fix at relatively low rates before the start of a rate-hiking cycle that is expected to lift mortgage rates from 5.5% to as high as 8% by the end of 2015.This mortgage margin compression has been offset by an expansion of term deposit and wholesale funding margins as savings continue to flood in to term deposit accounts and offshore funding is cheaper on relatively stable international markets.BNZ reported the fixed share of its mortgage book had risen from a trough of 32 per cent in the first half of 2012 to 58 per cent in the first half of 2014, but remains below its peak level of 88 per cent in September 2008.Outgoing BNZ chief executive Andrew Thorburn said he expected the margin pressure to continue and competition to remain strong.BNZ's share of the mortgage market dropped to 15.8 per cent from 16.2 per cent a year ago, which Thorburn said was because BNZ was focused on growing its premium customer base, who were repaying debt faster."We're focused on quality over quantity," he said.BNZ faced competition from ANZ, which grew market share in the first half and has aggressively pushed for lending volume growth in mortgages over the last two years as it seeks to protect its position following the late 2012 merger of the branches, brands and computer systems of its ANZ and National brands.BNZ also continued to fund all its lending growth from local deposit growth with a policy it calls 'dollar-in, dollar-out'. It has also repaid all its senior and unsecured funding from its parent to become the only one of New Zealand's Australian-owned banks to become independent in funding terms. BNZ's lending grew by NZ$3.1 billion to NZ$62.5 billion during the half from a year ago, while deposits grew by NZ$4.6 billion or 12.4 per cent to NZ$41.7 billion. This predominance of local deposits helped increase deposit margins by six basis points in the first half from a year ago, although this was not enough to fully offset a 16 bps fall in lending margins.