Financial Services New Zealand

Performance Summary

	Half year to		Fav/ (unfav) change on		Year to		Fav/ (unfav) change on
Australian dollars	Sep 03 $m	Mar 03 $m	Mar 03 %		Sep 03 $m	Sep 02 $m	Sep 02 %
Net interest income	323	328	(1.5)		651	549	18.6
Other operating income	162	167	(3.0)		329	283	16.3
Total income	485	495	(2.0)		980	832	17.8
Other operating expenses	(241)	(252)	4.4		(493)	(444)	(11.0)
Underlying profit	244	243	0.4		487	388	25.5
Charge to provide for doubtful debts	(14)	(7)	large		(21)	5	large
Cash earnings before tax	230	236	(2.5)		466	393	18.6
Income tax expense	(78)	(77)	(1.3)		(155)	(136)	(14.0)
Cash earnings before significant items (1)	152	159	(4.4)		311	257	21.0

⁽¹⁾ Refer to Note 1 (Performance Summary By Division) for a reconciliation of Financial Services New Zealand's result to Group net profit.

New Zealand dollars	NZ$m	NZ$m	%		NZ$m	NZ$m	%
Net interest income	364	361	0.8		725	657	10.4
Other operating income	183	184	(0.5)		367	339	8.3
Total income	547	545	0.4		1,092	996	9.6
Other operating expenses	(272)	(277)	1.8		(549)	(531)	(3.4)
Underlying profit	275	268	2.6		543	465	16.8
Charge to provide for doubtful debts	(15)	(8)	(87.5)		(23)	5	large
Cash earnings before tax	260	260	-		520	470	10.6
Income tax expense	(88)	(85)	(3.5)		(173)	(162)	(6.8)
Cash earnings before significant items	172	175	(1.7)		347	308	12.7

Key Performance Measures

Performance & profitability
Return on average assets (annualised)	1.21%	1.29%			1.25%	1.18%
Cost to income ratio	49.7%	50.8%			50.3%	53.3%
Cash earnings per average FTE (annualised) (NZ$'000)	80	83			81	71
Net interest income
Net interest margin	2.65%	2.78%			2.71%	2.61%
Net interest spread	2.89%	3.09%			3.00%	2.96%
Average balance sheet (NZ$bn)
Gross loans and acceptances	24.5	22.5	8.9%		23.5	21.1	11.4%
Interest-earning assets	27.3	25.9	5.4%		26.6	25.0	6.4%
Retail deposits	16.1	15.6	3.2%		15.9	14.7	8.2%

	As at
	Sep 03	Mar 03	Sep 02
Asset quality
Gross non-accrual loans (NZ$m)	30	38	31
Gross loans and acceptances (NZ$bn)	24.6	22.9	21.4
Gross non-accrual loans to gross loans and acceptances	0.12%	0.17%	0.14%
Specific provision to gross impaired assets	34.5%	28.8%	37.2%
Full-time equivalent employees (FTE)	4,257	4,221	4,277

Financial performance (in local currency)

Cash earnings increased 12.7% over the prior year reflecting stronger lending and deposit growth and improving housing market share.

Underlying profit increased 16.8% over the prior year.

• Higher net interest income reflects housing and deposit volume growth.
• Housing grew 17.9%, reflecting a stronger focus backed by a number of innovative products. BNZ is the only major New Zealand bank that does not lend through mortgage brokers.
• The current low interest rate environment combined with heightened competition, especially for housing, put increased pressure on the net interest margin. Downward pressure on retail deposit margins as a result of decreases in the official cash rate impacted margins in the second half of the year.
• Other operating income grew as a result of higher volumes and transaction levels. It was flat in the second half reflecting the impact of lower tourism and related businesses, and a trend by customers to use more cost-effective channels.
• Other operating expenses have increased from the prior year by 3.4%. However, the cost to income ratio improved from 53.3% to 50.3%.
  • Personnel expenses grew by 3.5% reflecting annual salary increases.
  • Non-personal expenses growth remained flat. This is attributable to productivity improvements, offset by increased marketing campaigns supporting the re-launched Brand initiative and increased leasing costs following the sale and lease back of the BNZ Centre.

The charge to provide for doubtful debts has increased by NZ$28 million on the prior year. Whilst the overall asset quality is stable with gross non-accrual loans as a percentage of gross loans and acceptances at 0.12%, increased statistical provisioning, particularly in Agribusiness, has led to higher charges in the second half.

Key achievements

• Over the year Bank of New Zealand achieved growth in the number of personal transaction and youth accounts. It captured over 19.0% of home loans systems growth to August 2003 (improvement in market share from 15.1% in September 2002 to 15.6% in September 2003).
• Launch of All Blacks Mastercard and BNZ Amex card in May.
• Improvement in customer satisfaction as measured by the University of Auckland Customer Satisfaction Survey for 2003, with a 14% increase in the percentage of satisfied / very satisfied residential customers. This has taken the Bank from 5th place (57%) to 2nd at 71%.
• Expansion and leverage of customer relationship capability (TOPS) that analyses customer activity, identifies needs and provides leads to Bankers for proactive customer contact. Over a million leads have been generated since implementation in November 2001.