ASB profit leaps to fresh records thanks to 'stronger than expected' recovery
Wednesday, 11 August 2021
ASB’s full-year profit has lifted almost 40 per cent, to a record $1.321 billion, as the bank rode a “better than expected” wave of recovery.
The bank said the result, for the year to June 30, was driven by 10 per cent growth in total lending, with home loans up 12 per cent on the year before. It lent money to 15,000 first-home buyers in the year.
Operating expenses increased 5 per cent, which ASB said was due to investment in people and technology, such as biometrics. It increased its workforce by 10 per cent with more than 500 new roles.
Chief executive Vittoria Shortt said many were frontline roles because the bank had noticed that customers facing uncertainty, such as during the pandemic, wanted to be able to have conversations with staff.
Its loan impairment expense dropped $311 million.
A year ago, all of the main banks had large provisions on their books for the prospect of loans going bad due to a Covid-19 downturn, which dented their profits.
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In ASB’s case, its 2020 profit was down 20 per cent on the $1.191b it made in 2019.
Claire Matthews, a banking commentator from Massey University, said the lift compared to 2019 was only about 7 per cent. That represented the most recent comparable year, she said.
“All the banks put in significant provisions that they found were not necessary because New Zealand’s economy bounced back quite quickly.”
She said the bank’s profits were likely to continue to increase because the sector was constantly looking at ways that it could make more money. ASB’s cost to income ratio fell again, which meant the bank was making more money with fewer costs, which would lead to higher profits.
ASB chief executive Vittoria Shortt said the bank’s results reflected a stronger than expected recovery in New Zealand more broadly.
“I don’t think anyone would have thought the economy would perform the way it has.”
But she urged against complacency, pointing to lockdowns in Australia as a reminder that the virus could reappear in New Zealand.
“The vaccine rollout is a really important part of trying to return to normality not just for things like more normal tourism.
“There's a real shortage fo labour. Whether I talk to one of our customers in horticulture, looking for fruit pickers or a customer looking for an experienced software engineer, it’s really hard to recruit people.”
Supply chain inflation would also be an important issue for the country, she said.
The bank’s net interest margin increased by six basis points, after a drop of 11 basis points last year. It has increased its capital levels from 13.2 per cent to 15.1 per cent, preparing for higher requirements set to be imposed by the Reserve Bank.
Shortt said the unpredictability of the coming months were the biggest challenge. “If the last 18 months have taught us anything it’s that we need to eb prepared for any outcome.”
ASB said it had delivered on its promise to use the Reserve Bank’s Funding for Lending programme to benefit New Zealanders.
It had launched initiatives such as Back my Build, offering a 1.79 per cent interest rate and cash back for people who build an energy efficient home, or their first home.
“Demand for Back My Build has significantly exceeded expectations – in just over a month, we received applications to support the construction of around 3,000 new homes,” Shortt said.
ASB has earmarked at least $1b of this discounted lending to support businesses investing in infrastructure and sustainability projects with more than $450m already approved. More than $100m in low-cost loans is also available to farmers who are taking positive steps to reduce their environmental impact, through ASB’s new Rural Sustainability Loan.