ASB’s profits have soared 31% higher in the last six months.
The bank has ruled a line under a net profit of $372 million for the six months to December 31 – up $89 million on the same time last year and 17% higher than the preceding six months.
Total earnings from banking activity was $874 million, which is $85 million or 10% higher than the same time last year.
The strong result reflects change in ASB’s loan portfolio mix as more customers move from fixed to variable-rate loans, which yield better margins and helped boost its interest income.
ASB says 63% of its mortgage holding customers are borrowing on a variable interest rate, compared to 48% a year ago.
Earnings from business loans also benefited from customers shifting from fixed to variable rate loans – now at 87% of all business loans.
Business lending had grown over the six months, contributing to the $128 million increase in lending for the period.
Rural customers, mainly dairy farmers, led the improvements in bad debt losses, which fell 61% to $14 million for the half.
ASB chief executive Barbara Chapman said in a statement the result should be seen in the context of the low credit growth environment, which was constraining growth in lending and balance sheets.
Across the Tasman, ASB’s parent bank, Commonwealth Bank (CBA), this morning posted a record of $A3.624 billion profit for the December half – up 19% on the same time last year.
The result comes as customer deposit margins remain under pressure due to ongoing market completion for banks – facing uncertainty in offshore funding markets as a result of the European debt crisis.
Funding pressures for international money are more obvious across the Tasman, where the parent banks of New Zealand’s four major banks have hiked interest rates, independent of the Reserve Bank of Australia, to maintain profit margins.
Commonwealth Bank of Australia lifted its variable mortgage rate by 10 basis points two-days ago.
Ms Chapman says global economic uncertainty is a "cloud on the horizon" with potential to jeopardise New Zealand's fragile recovery.
"We are closely watching overseas markets as the European debt crisis unfolds, particularly the degree to which this will impact funding costs and business confidence over the next few months."