BNZ first-half earnings rise 9% as turnaround in dairy cuts bad debt bill

The lender's cost to income ratio rose to 42.49% from 38.37% a year earlier.

Bank of New Zealand lifted first-half earnings 9 percent as the local subsidiary of National Australia Bank benefited from a smaller bill for bad debts as a recovery in global dairy prices alleviated stress on farmers' balance sheets, offsetting skinnier lending margins for financiers.

Cash earnings, the preferred measure of the Australian-owned banks, rose to $484 million in the six months ended March 31 from $444 million a year earlier. That was largely due to a 46 percent drop in the bank's impairment losses on bad debt to $43 million. Net profit fell 7.8 percent to $416 million, with BNZ wearing a $95 million unrealised loss in the fair value of its international debt instruments.

The lender's cost to income ratio rose to 42.49 percent from 38.37 percent a year earlier, as its operating expenses rose 5.4 percent to $458 million with the bank making greater use of mortgage brokers.

BNZ has been investing in digital platforms to shift more transactions online, letting it scale back opening hours and the number of more expensive physical branches. The bank had 161 retail branches as at March 31, down from 173 a year earlier. It had 488 automatic teller machines compared to 479 ATMs, and 745,000 internet banking customers, up from 705,000 in March 2016.

"As we simplify and deliver better customer experiences that are faster and more efficient, we are automating and digitising things that are currently manual and don't need to be," BNZ chief executive Anthony Healy said in a statement. "These initiatives will mean fewer people in parts of our business as well as growth of investment in areas of our business that didn't exist 10 years ago, or indeed, even today."

Healy said the bank will look to redeploy those staff to other parts of the business where they are hiring. The lender had 4,788 full-time equivalent staff as at March 31, down from 5,012 a year earlier.

NAB's New Zealand banking division, which excludes the BNZ's capital management and trading operations, contributed cash earnings of A$429 million to the group's A$3.29 billion. NAB returned to a first-half profit of A$2.55 billion from a year earlier when it wrote down the value of UK operations that it exited, and the board declared an interim dividend of 99 Australian cents.

BNZ's loan book grew 7.2 percent to $76.2 billion, a slower pace than the 8.6 percent increase in deposits to $53 billion. Net interest margins shrank 12 basis points to 2.15 percent as lending rates fell faster than the bank's funding costs, Healy said.

"Today there are more people looking to borrow, so banks are paying more to win customers' deposits so this will lead to higher lending costs being passed through to borrowers," he said.

NAB's ASX-listed shares last traded at A$33.09, having gained 7.9 percent so far this year.