Investment delivers strong volume growth for BNZ

Strong performance across small, medium and large business banking and growth in retail, offset by volatility in markets and debt instruments, has seen Bank of New Zealand (BNZ) report a statutory net profit for its banking group1 of NZ$913 million for the year to 30 September, 2016.

The New Zealand Banking Operations2 saw cash earnings3 increase $13 million year on year with a particularly strong second half driven by solid revenue growth and a lower charge for bad and doubtful debts.

“Our strategy is delivering for the bank, despite a challenging year in a highly competitive banking environment and with higher funding costs affecting margins,” said BNZ CEO Anthony Healy.

Key results:

(comparisons are to year-end 30 September 2015, for both banking group and New Zealand banking operations)

BNZ banking group1

  • Statutory net profit1of NZ$913 million, NZ$125m less than last year, due to lower trading income in BNZ markets, and losses on hedging derivatives from both the strengthening NZD and interest rate movements. 
  • Cash earnings3decreased by NZ$33 million or 3.4%. 
  • Common Equity Tier 1, Tier 1 and total capital ratios1 of 10.21%, 10.54% and 12.04%, respectively.

New Zealand banking operations2

  • Underlying profit2 increased by NZ$11 million due to higher revenue, partly offset by higher expenses. 
  • Cash earnings3 showed an increase of NZ$13 million or 1.6% to $836 million, assisted by a lower charge for bad and doubtful debts reflecting the strength of economic conditions outside the dairy sector.
  • Net interest income2 decreased by $7 million or 0.4% as lower product margins were partly offset by higher volume growth. 
  • Net interest margin2 decreased by 19 basis points to 2.25% reflecting the competitive market environment, lower wholesale interest rates and rising funding costs. 
  • Other operating income2 increased by NZ$26 million or 5.6%, due mainly to increased revenue from the retail wealth segment and improved revenue from the credit card portfolio. 
  • Operating expenses2 increased by NZ$8 million reflecting investment in priority segments such as digital, SME, broker and Auckland. 
  • Charges for bad and doubtful debts2 decreased by NZ$9 million or 6.7%. Lower specific provisions broadly reflected the strength of economic conditions. This was partly offset by higher general provisions, being mainly due to the dairy sector downturn in the first half. 
  • Average customer deposits2 increased by NZ$3.7 billion or 8.2% with spot balances growing by NZ$4.7 billion.
  • Average lending volumes2 increased by NZ$5.0 billion or 7.6% with spot balances growing by NZ$6.1 billion. Average housing volumes increased by NZ$2.1 billion or 6.6% and business lending by NZ$3.0 billion or 9.2%. 

Commentary – Anthony Healy

Digital investment

“Our digital investment is delivering a compelling customer experience, which was acknowledged when BNZ was ranked top of the banking sector in the SAP Digital Experience report. BNZ is the only New Zealand bank to offer fingerprint login on both our retail and business banking apps, for both iOS and Android phones.

“Our biggest store is our digital store – the vast majority of our customers transact with us digitally and 89% of transactions are now either through internet banking or our app – that is 13.2m sessions each month. This is a 21% increase overall and mobile is up 36%.

“We migrated 500,000 customers to a new online banking platform, and in doing so rationalised thousands of accounts and products. We encourage our customers to increase their home loan payments through internet banking, and we have a compelling new feature that shows how a small repayment reduces the term and the interest paid. Since launching this feature, around 1,600 customers have already cut 7,000 years off their home loans.”

Business banking

“We were awarded Canstar New Zealand’s Best Small Business bank for the sixth year in a row and we continued our commitment to meeting the needs of these customers by opening a new small business hub in Hamilton and hiring new small business specialists in Auckland and Christchurch.

“Across SME we’ve seen extremely strong revenue growth of 9.1% year-on-year. Our business banking model is market leading and our support of regional New Zealand can be seen through our 34 Partners Centres. This support will continue with the opening of our new BNZ Centre in Christchurch in December.”


“Our Auckland strategy has delivered growth within our existing risk appetite. We’ve targeted the housing and SME segments and both have seen strong volume increases. We continue to play an important role in helping support infrastructure growth and addressing housing supply issues.”

Mortgage market

“We have retained our market share thanks to a focus on sustainable growth and our re-entry to the broker market has played a big part of that, with $1.8 billion in home loans written through broker this year. This year we have appointed four new broker partners: Mortgage Express, Global Financial Services, Kepa and Mortgage Link.

“Housing affordability continues to be an issue, and as long as migration and supply are key factors the recent loan-to-value restrictions will only have a short term effect. Like all banks, we anticipate that there will be increased pressure on lending margins in the coming months which will influence interest rates.”


“We have worked as a true partner to our dairy customers and I believe our management of the downturn has been market leading. We managed our risks well and took a prudent approach to our dairy lending, making provisioning decisions early. The outlook could be turning for the positive, but while there is still some uncertainty we will retain our prudent approach.

“In April, we announced an investment in cloud-based farm accounting software provider Figured Limited, making it easier for farmers to work with their accountants, farm consultants, and rural bankers.

“The challenges of dairy, which makes up about 57% of our agribusiness lending, have been noted. But it’s important to acknowledge that many of our other customers in sheep and beef, forestry, kiwi and pip fruit and viticulture have had a very strong year.”

Contribution to a high-achieving New Zealand

“The expansion of the Community Finance Initiative is a real highlight. We are working in partnership with the Government and Good Shepherd to offer this service in new areas including Wellington, Invercargill, Whangarei, Palmerston North and Christchurch. Community finance offers low and no income loans to New Zealanders who typically don’t meet bank criteria, and have exhausted WINZ options. We estimate that our $700,000 of community finance lending has saved our clients more than $380,000 compared with borrowing through alternative lenders.”

Capital and Funding Position

BNZ maintains a robust capital structure, with a strong balance sheet that is well funded through diversified and stable funding sources. BNZ’s Core Funding Ratio (CFR) of 86.07% exceeds the Reserve Bank of New Zealand minimum requirement of 75% as at 30 September, 2016. BNZ’s Common Equity Tier 1, Tier 1 and Total capital ratios of 10.21%, 10.54% and 12.04%, respectively, as at 30 September 2016 were well above the RBNZ minimum capital ratio requirements of 7.00%, 8.50% and 10.50%, respectively. Collectively, BNZ’s funding and capital position is supportive of BNZ’s long‐term senior unsecured issuer credit ratings of AA‐/Aa3/AA‐ (S&P/Moody’s/Fitch).

BNZ’s 2016 capital levels were impacted by the amortisation and redemption of Basel II transition eligible capital instruments totalling NZ$785m. In October 2016, BNZ strengthened its capital position by issuing NZ$900 million of mandatorily convertible subordinated perpetual unsecured notes (“Notes”) to its ultimate parent, National Australia Bank Limited (“NAB”). This new capital instrument qualifies as Additional Tier One capital of BNZ for regulatory purposes. Subsequent to the Notes issuance, the capital ratios of BNZ for Tier 1 and Total capital would have been 1.48% higher than those reported as at 30 September 2016.

View full media release and financials PDF 291KB

1. “Banking Group” means Bank of New Zealand’s financial reporting group, which consists of Bank of New Zealand, all of its wholly owned entities and other entities consolidated for financial reporting purposes.
2. “BNZ’s New Zealand banking operations”: excludes BNZ’s Group Capital Management and BNZ Markets operations (previously known as Wholesale Banking) from the “Banking Group” and includes the Insurance operation in New Zealand for management reporting purposes.
3. Cash earnings is a common measure of financial performance which excludes items introducing volatility and one-off distortions that are unrelated to BNZ’s ongoing financial performance. Cash earnings is based on statutory net profit which is adjusted to exclude fair value movements, hedging gains/(losses) and the disposal of subsidiaries. These items are excluded from cash earnings as they introduce volatility and/or distortions and are shown in the cash earnings to net profit reconciliation included on the final page. Cash earnings is calculated in accordance with NAB Group policy.

Expansion of community finance initiative

The Community Finance partnership announced today that its low and no interest loan schemes are now available in five new regions, after receiving additional government funding in the May 2016 budget.

The initiative, which is run by Good Shepherd New Zealand and BNZ, with support from the Ministry of Social Development and delivered by community partners like the Salvation Army, is now available in Invercargill, Wellington, Whangarei, Palmerston North and Christchurch in addition to the pilot locations in Auckland.

A pilot was established in 2014 to provide loans to a group of New Zealanders described as ‘financially vulnerable’ – meaning they don’t meet standard bank criteria and have exhausted their Work and Income options. As a result, many are forced to take out loans with alternative lenders, many of whom charge high interest rates and fees.

“Community Finance provides access to a fair, safe and affordable line of credit for people living on low incomes, and we are delighted that the success of the pilot led to the funding that is enabling us to launch our new regions today,” said Chief Executive of Good Shepherd New Zealand Fleur Howard.

“But we know it’s so much more than a loan. By connecting with community loan workers, people learn life skills like managing their budget better and become more savvy in their understanding of the dangers of third tier lenders. There are broader societal benefits in what the loans deliver too – a reliable car for many of our customers is what they need to hold down a full time job. A computer can help with further education”, she said.

BNZ, which provides the lending, said 280 loans had been approved and estimated that the $700,000 of lending to date has saved clients more than $380,000 in interest and charges when compared to borrowing the same amount through alternative lenders.

Chief Executive Anthony Healy said the bank had been a proud partner since inception and had now committed $60 million in lending over the long term as well as expertise and advice where needed.

“Community Finance addresses a very real need and BNZ is proud to be part of that. But what is most exciting is seeing what comes next for a client; what the loan enables. I heard about a young man who came to us and said that the only thing stopping him from getting a job was having a car. We were able to arrange a StepUP loan with Community Finance which meant he could buy a second hand car. We were delighted when he told us he had secured an apprenticeship the next day,” he said.

Government evaluation of the Community Finance pilot showed there were other benefits from the financial conversations that happen as part of the loan process. This includes strengthening people’s financial capability and increasing the wellbeing of families and communities.

Major Pam Waugh, Territorial Social Services Secretary for The Salvation Army said, “Running a tight budget can be hard enough without the added pressure of predatory lenders on your back. The reduced stress these Community Finance loans deliver can make such a difference to people’s family life.”

The initiative currently partners with The Salvation Army and Aviva in the new locations. New community provider partners and new locations will be added over the next 6 months.

 About Community Finance:

  • The Ministry of Social Development contributes operational funding to Good Shepherd New Zealand and the community providers.
  • In the 2016 Budget, Community Finance was awarded an additional $4.2 million of operational funding over four years.
  • Good Shepherd New Zealand has been supported through the development of the initiative here by Good Shepherd Microfinance in Australia which has been operating in Australia for more than 35 years.
  • BNZ has committed $60 million in lending to the initiative.
  • Community Finance loan products have no fees or charges and are available to people on low incomes who are eligible for a Community Services Card.
  • No Interest Loan Scheme (NILS) is available for amounts up to $1,500 for essential goods and services. StepUP, the low interest loan, provides loans of up to $5,000 with up to three years to pay loans back.
  • The most popular purpose for a StepUP loan is for second hand cars or car repairs.
  • For more information visit: