ASB Bank has reported a record annual profit despite a slowing housing market and growing economic winds, and voiced confidence borrowers can cope with rising interest rates.
ASB reported $1.47 billion in profit. Photo: RNZ / Nate McKinnon
The country's fourth biggest bank reported a net profit for the year ended June of $1.47 billion, up 11 percent on the year before, as it increased its lending and held its costs and margins.
"Whilst we've seen some good lending growth in terms of business customers and our personal customers we can really see quite a big drop off in home lending which you would expect in the rising interest rate environment and the rising cost of living," chief executive Vittoria Shortt said.
The bank's cash profit, which excludes one-offs, grew 9 percent to $1.42b.
Home lending increased 6 percent for the year, although it slowed more in the second half. The previous year home lending grew 12 percent. Business lending slowed to 6 percent growth.
Shortt said market growth has slowed further in the past three months to 3.6 percent, reflecting lower demand for credit, but also the Credit Contracts and Consumer Finance Act (CCCFA), blamed for causing a credit squeeze because of tighter lending criteria.
Rising rates no issue yet
She said rising interest rates were starting to be felt by borrowers but they seem prepared for the higher costs.
"About a third of our customers are on new lending rates that are about 1 percent higher than they were previously on and when we check in with them they are doing well, and the reason for that is that we've had a servicing rate of 6.45 percent so we've always made sure out customers can afford higher levels of interest rates.
"We can't see any material shift in our arrears rate to date."
The current "stress test" level for new borrowers is more than 7.8 percent, although Shortt said the high level of employment was a reason for confidence that consumers will cope with higher rates.
ASB held its interest rate margin steady at 222 basis points, as gains from higher interest rates were offset by higher costs of deposit rates.
The bank's cost of doing business compared to its income fell 190 basis points to 37.1 percent.
In a nod to growing economic pressures and signs of a slowdown the bank set aside $41m for bad and doubtful debts compared with a $5m reclaim of provisions not needed the previous year.
It also reduced, rebated, or removed $50m in fees and charges on businesses and consumers to reduce financial pressures.
Shortt side-stepped whether she thought the economy might fall into recession.
"We think it's important to understand the domestic drivers of inflation .. and we think employment is a really big factor that's on the mind of all the business customers we talk to .. and we think wage inflation is something we need to keep a really good eye on."
ASB paid its parent Australia's Commonwealth Bank just over $1 billion in dividends.