1 Nov 2012

BNZ to use profit to strengthen balance sheet

9:51 am on 1 November 2012

BNZ Bank chief executive Andrew Thorburn says it will retain its profit to strengthen its balance sheet to meet international rules.

The Australian-owned bank's cash earnings rose to $741 million in the year to December, a 21% increase on the year, thanks to higher income, fewer bad debts and keeping costs in check.

Last week, ANZ New Zealand's underlying full year profit rose 10% to $1.4 billion.

The major banks' profits have been criticised as excessive, prompting concern their Australian owners are benefiting at the expense of struggling households and firms.

But Mr Thorburn says strong banks are needed to support the recovery.

He says the bank's underlying profit has gone up only 8.8% and there is a lot of complexity and risk in the process of borrowing and lending to a range of customers.

"So it is important that the bank, for that risk, gets an adequate profit to both compensate the shareholder for the risk they're taking, but also in this case now to bolster our capital".

Mr Thorburn says a bank's profitability is vital because around the world it has been evident that when that is threatened disfunction emerges.

"Banks can't lend to businesses, customers don't have confidence that their deposits are safe and ultimately the taxpayer has to step in, and that is all an ugly situation".

Looking ahead, Mr Thorburn is expecting business to be cautious about investing more amid an uncertain and tepid global recovery.

Meanwhile, the BNZ's parent, National Australia Bank, experienced a 0.5% fall in its full year cash profit to $A5.4 billion, due to its struggling UK operations and cooling Australian economy. Its statutory profit fell 22% to $A4.1 billion.