BNZ bad debt provision jumps 83% in first half on dairy exposure
Bank of New Zealand's charge for bad and doubtful debts jumped 83% in the first half as the local unit of National Australia Bank doubled its provision against its dairy book in the face of a sustained downturn.
BNZ's charge for bad and doubtful debts rose to $84 million in the six months ended March 31, from $46 million a year earlier. The charge contributed to a 3.3% decline in cash earnings to $404 million.
"Our New Zealand banking business produced a solid result this period despite challenges facing the dairy industry," NAB chief executive Andrew Thorburn said in a statement. "While we remain confident of the robustness of the underlying New Zealand economy, against a backdrop of sustained low milk prices we have taken a proactive approach to provisioning for future dairy impairments."
Its Australian parent's first-half accounts show $A522 million of new impaired assets in the first half related to New Zealand dairy. Farmers supplying New Zealand's biggest export industry are enduring low prices for their milk in the face of a global supply-demand imbalance, with Fonterra Cooperative Group's forecast payout of $3.90 per kilogram of milk solids well below the estimated $5.25/kgMS breakeven level for the average farmer. Last year 76% of farmers took up an interest-free loan, which cost the company $390 million.
"We commenced reviewing our dairy portfolio 18 months ago, working with customers as we took a 'lower for longer' view of the sector," BNZ chief executive Anthony Healy said in a separate statement. "We have also doubled our collective provision for dairy to reflect this."
Mr Healy said the bank had been working with rural borrowers "to plan for a range of scenarios and the majority of our farmers are enacting those plans now. From a financial management perspective, they're adjusting well, removing costs and, if they have to, selling non-core assets."
BNZ's net interest margin fell to 2.31% from 2.42% in September, which the lender attributed to "lower deposit and lending margins and higher funding costs from heightened offshore market volatility."
Net interest income rose 3.8% to $882 million, as higher lending volumes partly offset the lower net interest margin.Total assets climbed 9.7% to about $90 billion and total liabilities rose 9.6% to $82.7 billion.
National Australia's total cash earnings rose to $A3.3 billion from $A3.1 billion a year earlier. Net interest income climbed to $A6.6 billion from $A6.2 billion. The Australian lender reported a statutory net loss of $A1.74 billion related to discontinued businesses and kept its first-half dividend unchanged at 99Ac a share.