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BNZ cash earnings climb 21% as mortgage demand widens margins

BUSINESSDESK: Bank of New Zealand, the local unit of National Australia Bank, posted a 21% gain in cash earnings, saying its net interest margin widened on demand for variable rate mortgages.

Cash earnings rose to $741 million in the 12 months ended September 30, from $612 million a year earlier. Net operating income climbed 6% to $1.88 billion.

New Zealand marked a bright spot for NAB, as the group's total cash earnings fell 0.5% to $A5.4 billion and net profit dropped about 22% to $A4.1 billion, reflecting higher charges for bad debts in the UK and a general provisioning pretax charge of $A250 million.

Revenue for the group rose 3.6% in a year when the lender focussed on maintaining balance sheet strength, with $A31.3 billion of term wholesale funding secured during the year.

For New Zealand's third-biggest bank by net assets, the latest year saw the net interest margin widen by 9 basis points to 2.39%. The cost-to-income ratio fell by 150 basis points to 40.6%. Total assets rose to $59.7 billion from $58.1 billion. Its Tier 1 capital ratio was 11.26%.

"Continuing to strengthen our balance sheet is imperative in the face of lingering global uncertainties," BNZ chief executive Andrew Thorburn says.

"While we're seeing signs of stabilisation domestically, the operating environment remains challenging, with volatility in Europe and uncertainty around the timing of the Christchurch rebuild, as well as growth concerns in China and Australia."

The provision for bad and doubtful debts fell by $53 million or 35 percent to $98 million, which it said partly reflected customers benefiting from historically low interest rates.

The lenders aid its share of rural banking rose to 21.9% from 20.8% and its share of retail deposits climbed to 18.8% from 18%.

Cash earnings were 7.5% lower in the second half than the first six months, when the bank recorded a low provision for bad and doubtful debts.