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ASB lifts first-half earnings by 6pc

NZ Newswire logoNZ Newswire 14/02/2017 Paul McBeth

ASB Bank boosted first-half earnings 6 per cent as the local unit of the Commonwealth Bank of Australia grew its residential, commercial and agriculture lending, even as more expensive funding squeezed margins.

Cash profit, the favoured earnings measure for banks that strips out non-core items, rose to $507 million in the six months ended December 31 from $477 million a year earlier, ASB said in a statement. Net profit rose 11 per cent to $525 million.

Net interest earnings rose 5.2 per cent to $923 million as the bank's loan book expanded 11 per cent in the half to $76.06 billion, making up for net interest margins shrinking to 2.21 per cent from 2.32 per cent a year earlier. Customer deposits grew at a more modest pace of 5 per cent to $56.37 billion.

"Banks are now facing a changing dynamic around the increasing volume and cost of international funding needed to meet local lending requirements," ASB chief executive Barbara Chapman said. "With the levels of local deposits failing to keep pace with the amount of lending banks are doing, the increased use of offshore funding has increased funding costs, reducing our net interest margin."

Bank margins reached a nine-year high in 2015 as rampant demand for property and agricultural lending underpinned lenders' income. However, they started to get squeezed through last year as offshore wholesale funding costs rose as low interest rates on domestic retail deposits reduced their appeal.

ASB kept operating costs flat at $411 million, meaning it improved as a ratio to income and Ms Chapman said the bank was continuing to invest in its frontline and digital capabilities.

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