Rising Costs and Capital Needs Challenge ASB Despite Profit Growth

Steady Profit Growth Amid Economic Recovery

ASB, the New Zealand banking arm of Commonwealth Bank of Australia, has reported a 1% increase in cash net profit after tax (NPAT) to $716 million for the six months ending December 31, 2024. This modest growth reflects a cautious but positive trajectory as New Zealand's economy moves through a gradual recovery phase following a challenging economic cycle.

The statutory NPAT rose 2% to $763 million, supported by a 4% increase in operating income. This was largely driven by higher lending volumes and favourable interest rate hedging strategies, which helped offset an 8% rise in operating expenses. Lending growth was broad-based, with home loans up 5% and business and rural lending increasing by 2% compared to the prior period.

Balancing Growth with Capital Strength

Despite the profit increase, ASB's return on equity dipped slightly by 0.6 percentage points to 13.5%, primarily due to heightened capital requirements. The bank's total capital ratio improved by 80 basis points to 16.3%, bolstered by an additional $700 million in shareholder investment, bringing total equity in ASB to $11.4 billion. This capital base is intended to support ongoing growth and resilience in New Zealand's evolving economic landscape.

Focused Support for Housing and Customers

ASB has actively responded to the housing market by reducing one-year fixed home loan rates by 1.65% and six-month rates by 1.35% since July 2024, aiming to ease borrowing costs for homeowners. However, many borrowers remain on fixed mortgages, so the full benefit of rate cuts is expected to phase in gradually over the coming months.

The bank facilitated over 23,000 customers in building, refinancing, buying, or moving homes during the half-year, including nearly 5,500 first-home buyers. Notably, ASB has committed $165 million through its Accelerated Housing Fund to support approximately 450 new community, affordable, and Māori homes, reflecting a strategic emphasis on social and Māori-led housing projects.

Backing Business, Innovation, and Sustainability

ASB extended more than $1 billion in new lending to business, rural, and corporate customers, reinforcing its role in underpinning New Zealand's economic recovery. The bank's $30 million Clean Tech fund and $20 million ASB ACCESS food and fibre fund are designed to accelerate growth for exporters and innovators lacking capital, signaling a forward-looking approach to sustainable and technology-driven sectors.

Infrastructure investment remains a priority, with ASB estimating a $1 trillion need over the next 30 years, particularly in renewable energy. The bank aims to facilitate funding that helps households and businesses reduce emissions and improve profitability, aligning with broader environmental and economic goals.

Enhancing Security and Digital Services

In response to rising fraud and cybercrime, ASB plans to invest an additional $140 million this financial year in people, technology, and awareness initiatives. Despite a 16% increase in online banking fraud cases, customer losses fell by a third, highlighting the effectiveness of these measures. The bank also introduced Confirmation of Payee to enhance payment security and actively dismantled around 100 fake ASB websites to protect customers.

On the digital front, ASB's financial wellbeing tools have engaged over 580,000 customers, contributing to its recognition as Best Digital Bank for the third consecutive year by CanStar. The bank's open banking infrastructure is live, with free access offered to third-party providers for the first year to encourage innovation while maintaining stringent data security standards.

Looking Ahead

ASB's half-year results paint a picture of cautious optimism. The bank is navigating a complex environment of rising costs and capital demands while investing strategically in growth sectors and customer support. Its commitment to housing, innovation, and security positions it well to capitalize on New Zealand's slow but steady economic recovery.