Covid-19 takes 20 per cent off ASB profit
Wednesday, 12 August 2020
ASB has reported a 20 per cent drop in cash net profit, which it blamed on Covid-19 and the low interest rate environment.
Profit after tax (NPAT) was $967 million for the 2020 financial year.
“Our immediate and short-term focus has been on providing options to support customers with financial difficulty caused by Covid-19, while considering what support they may require in the longer term,” said ASB chief executive Vittoria Shortt.
She said “every element” of the result was easy to understand in the context of Covid-19 and record low interest rates.
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ASB’s impairment losses on financial assets increased to $306m. “This substantial increase in provisioning levels reflects our current view of the impact of Covid-19.”
The bank’s cash net interest margin, the difference between what it pays for deposits and what it earns on loans, decreased by 12 basis points to 2.11 per cent.
Operating income fell 1 per cent year-on-year and operating expenses increased 11 per cent.
“The global uncertainty due to the Covid-19 pandemic is causing significant economic and social disruption. Trade disputes and heightened political tension may further disrupt global trade and the business environment,” Shortt said.
“We are also conscious of the impact of the physical and economic effects of climate change and the effectiveness of current and planned responses remains uncertain.
“While New Zealand had some encouraging signs of business confidence rebuilding, and spending levels rebounding, the change of alert levels announced by the Government [on Tuesday] night demonstrated there is no room for complacency and economic recovery is more likely to be bumpy.
“We are anticipating difficult times ahead for businesses and people in the industries most impacted by Covid-19, in particular tourism, international education and retail. For confidence to be maintained, it’s more important than ever to find new solutions to minimise unemployment and help businesses reset and take action.”
She said it was too early to tell how much the new community transmission would affect the outlook for the bank and its customers. “The important thing is to plan, that’s what we’re doing and that’s what we are encouraging customers to do.”
It was disappointing but not surprising, she said.
She said the bank had given assistance, including financial support, to 31,000 personal and business customers from March through to the end of June.
“These have included principal relief, deferred payments, term extensions and reduced-cost overdraft facilities totalling more than $11 billion.
“Pleasingly many of our customers are reverting to their previous payment arrangements as they haven’t been as impacted as they thought they might. However, the next 18 months are likely to be tough for some of our personal and business customers, particularly as different support packages such as the wage subsidy and loan repayment deferral schemes begin to end.
“We are doing all we can to support customers who find themselves in vulnerable situations. In June we started proactively contacting customers on relief packages to understand their personal circumstances and see how we might support them further. So far, we have contacted more than 12,000 customers.”
Many customers said they did not need as much support as they thought they did, she said. Others, particularly in the retail, hospitality and tourism industries, still required further assistance.
Shortt said ASB was preparing for the possibility of a negative official cash rate, which the Reserve Bank has signalled is one of the options being considered as it considers monetary stimulus for the economy.
ASB expects house prices to fall 6.6 per cent from peak to trough, with variation between regions, but Shortt said the home loan market had proved to be resilient so far.