Business lending remains subdued - BNZ

BNZ says growth is improving with a rise in cash earnings over the six months, but demand for business and household credit remains subdued.

The Bank of New Zealand yesterday revealed cash earnings of $255 million from its core local banking operations in the six months to March 31 -- down 8.6% on the same time last year.

But compared to the previous six months to September, earnings were up 7.1%.

With the recent half improvement, it’s the third major bank in this country to indicate, in the last fortnight, the worst of the recession is behind them.

Chief executive Andrew Thorburn said while long-term prospects were positive, he remained “cautiously optimistic” with short-term headwinds of high unemployment, rising interest ratites and uncertainty in international finance markets.

Headline profit for the BNZ group as a whole, which includes New Zealand banking and the wholesale business, remained stable at $415 million, a rise of 3.8% on the same time last year.

Mr Thorburn said the bank had increased its average lending over the half-year by 4% compared to March 2009 while lending from the total banking system had declined. It had maintained business market share – 22%.

Housing market share had risen to 15.8% from 15.5% in March last year and agribusiness marker share rose to 19% from 18.2% last year.

The last three to six months businesses had seen businesses paying back debt to get their balance sheets stronger, but others did not want to make big investments, said Mr Thorburn.

Provision for bad debts had improved and at $88 – was $11 million less than the same time last year.

Aggressive demand for customer deposits was not expected to diminish in the year ahead.

Despite the “intensely competitive” market, BNZ achieved a 9.1% increase in average volumes over the last year and increased retail deposit market share to 17.5% from 16.1% in March 2009.

Mature wholesale funding that is being replaced at higher market rates was also driving up total funding costs, said Mr Thorburn.

“All of our wholesale funding raised in the six months to March 31 was completed without the use of the government guarantee, whish shows strong investor confidence in BNZ.”

With an AA rating, BNZ did not nave a need for the guarantee, but it did not have to make a decision on that until October.

“Our view is the banking system is strong and we don’t have a need for the guarantee but that is under review.”

BNZ is the third bank to report half-year results in the last fortnight, with similar patterns.

Westpac yesterday revealed cash earnings of $125 million in its New Zealand business for the six months to March – down 38% from the year earlier but almost four times earnings for the six months to September.

Last week, ANZ revealed an underlying profit of $372 million for the period, down 25% on the same time last year but almost triple the amount it made in the previous six months.