ASB today reported statutory net profit after taxation (NPAT) of $593 million for the six months ended 31 December 2017. This represents a 13% increase on the prior comparative period.
Cash NPAT was $575 million, an increase of 15% on the prior comparative period. Cash NPAT is the preferred measure of financial performance as it presents ASB’s underlying operating results and excludes items that introduce volatility and/or one-off distortions, and are not considered representative of ASB’s on-going financial performance.1
Key financial points
Solid growth, stabilising margin and lower impairment drive result
Incoming ASB Chief Executive Vittoria Shortt said the result was the product of a combination of balanced lending and deposit growth across key portfolios along with stabilising margins. The result was also influenced by lower impairment expense with the continued improvement in the dairy sector allowing for provision releases.
"This was a strong first half performance, driven by balanced, business-wide growth and a continued focus on cost management, despite some significant regulatory compliance costs, and higher technology expenses," says Ms Shortt. "At the same time, we are continuing to accelerate our digital transformation while leveraging our strengths in customer service and innovation."
Ms Shortt also paid tribute to her predecessor Barbara Chapman who departed in early February. "Barbara and the team have done an exceptional job in building a high-performing, diversified business during a period of unprecedented change and disruption for the industry," says Ms Shortt. "It's my great privilege to be stepping into the Chief Executive role during such an exciting time for ASB as we continue to build on the momentum established over the past several years under Barbara’s leadership."
Solid lending and deposit growth
Home loans increased by 5% against the prior year while business, commercial and rural lending grew by 8%. This contributed to an increase in total customer lending of 6% on the prior comparative period.
In addition, customer deposits grew by 8% in a competitive market for bank deposits. "We are seeing a continued trend around customers focusing on increasing savings and taking advantage of the current low interest rate environment to pay down debt," says Ms Shortt. "We are also making it easier for customers to achieve this by enhancing our Wealth product offering to provide easier access to a range of investment options, with funds under management increasing by 25%2 over the period. In addition, ASB was once again recognised by Canstar, achieving 5-star ratings across all funds in the KiwiSaver Scheme, the only KiwiSaver provider to achieve this in 2017."
ASB’s cash net interest margin (NIM) increased by 1bp over the prior comparative period. "We have continued to see NIM stabilising after a period of decline over recent years," says Ms Shortt. "This has primarily been driven by improved lending margins, partly offset by the impact of competition for term deposits."
Reduction in impairments
Loan impairment expense reduced by 47% (-$23m) over the prior comparative period, following the release of provisions, particularly in the dairy sector which continues to recover. Impairment expense within the home lending portfolio continues to remain subdued.
Cost to income ratio continues to improve
ASB’s cost to income ratio for the six months to 31 December 2017 was 34.1%, an improvement of 160bps. Operating income growth was 8% (on a cash basis) while operating expenses grew by 3%, driven by regulatory compliance costs, technology and staff costs.
ASB in the community
"ASB’s vision and values are at the heart of the way we do business and our corporate responsibility strategy translates these into tangible actions to make a positive impact on the communities in which we operate, on our environment and the New Zealand economy," says Ms Shortt. "Through our sponsorship of the 2017 Lions' Tour, and through a range of other fundraising efforts, ASB people helped raise more than $200,000 for Starship Children’s Hospital over the six month period. And once again, our annual St John toy ambulance campaign helped raise more than $100,000 for St John."
In December 2017, ASB celebrated the opening of its new South Island regional centre in the heart of Christchurch's central city. The High Street and Cashel Street tenancy also marks the return of a permanent ASB branch in central Christchurch. "This new facility represents an exciting new chapter in ASB’s history in Christchurch and there’s no doubt our new home will be a base from which we’ll be delivering outstanding service to our customers long into the future," says Ms Shortt.
1Items include hedging and IFRS volatility, the notional cost of capital charged by the Commonwealth Bank of Australia (the ultimate parent of ASB Bank Limited) and other material non-recurring items. These items are calculated consistently period on period and do not discriminate between positive and negative adjustments. Refer to the Consolidated Performance in Brief for a reconciliation of the statutory and cash net profit after taxation, and for further information on these items.
2Includes NZD7,222 million of balances managed by CFS Global Asset Management (30 June 2017: NZD5,776 million; 31 December 2016: NZD5,336 million).