ANZ Bank says its first-half net profit from its New Zealand operations fell 4 percent as profits from retail lending eased amid a slowing housing market.

Net profit for the six months ended March fell to $929 million from $964 million in the same six months a year earlier. This was despite a 3 percent rise in net interest income to $1.63 billion.

Profits from retail lending fell 3 percent to $510 million, while profit from commercial and agricultural lending rose 3 percent to $286 million.

“The housing market has levelled off, particularly in Auckland, which has been the growth engine of that sector over the past 10 years,” says chief executive David Hisco in a statement.

“When you combine that with historically low interest rates, intense competition in home lending that has impacted bank net interest margins, and our fee reductions, underlying revenue growth has been muted,” Hisco says.

ANZ’s Australian parent’s results show the New Zealand division’s net interest margin eased to 2.38 percent in the latest six months, from 2.42 percent.

The New Zealand bank says its expenses fell 1 percent due to the divestment impact of OnePath Life. It said its cash profits, which exclude core banking activities including hedging, rose 18 percent to $1.11 billion because of one-off transactions, including the sale of OnePath and of ANZ’s 25 percent share in electronic payments processor Paymark.

ANZ’s Australian results also show that the New Zealand bank’s staffing levels fell by 316 full-time equivalents to 6,003.

“International uncertainty hasn’t helped exporters and tourism numbers, particularly from China, have been flat. While we are seeing welcome signs of a pick-up in investment, commercial and agri customers are still being cautious with their borrowings,” Hisco says.

Charges against profit for bad debts fell to $32 million from $70 million in the previous first half. Hisco says this reflects low levels of credit losses as credit quality improved in “a benign credit environment.”

ANZ has offset revenue pressures through its continued focus on digital innovation and customer service while maintaining strong credit quality and cost discipline, he says.

“Since 2010, we have maintained our leading market share with no change to our cost base while investing more in digital products and services to make our business more efficient.

“This means we’ve been in a position to pass cost savings on to customers and reduce fees on more than 40 products and services worth about $70 million in annual revenues while strengthening our competitive position.”

The parent’s results show ANZ’s share of the New Zealand mortgages market remained steady at 31 percent, its share of deposits fell to 33.8 percent in February from 34.1 percent, its share of credit cards fell to 26.5 percent from 27.7 percent, and its share of KiwiSaver funds eased to 23.3 percent from 24.4 percent.

ANZ’s share of agricultural lending, something it has been deliberately reducing, fell to 28.5 percent in February from 32.4 percent in September 2014 and from 39.1 percent in September 2010.

Hisco says the impact of economic uncertainty is offset by low unemployment and interest rates and the fact that China is likely to be the global growth engine for many years to come. This means New Zealand is in a good position to prosper.

“We need to be careful as a nation not to talk ourselves out of maximising our opportunities. The economy has strong foundations, we have many clever, innovative and hard-working businesses with a bright future, and all indications are that the May 30 Budget will be solid,” he says.

“As always, New Zealanders, particularly home owners, need to take advantage of the low interest rate environment to pay off as much debt as possible so they’re in a stronger position should circumstances change.”

This is the first financial year in which ANZ has operated without trying to motivate frontline staff with bonuses based on business volumes, a change implemented in the wake of the Australian royal commission into financial services.

Hisco says staff “embraced the cultural change away from sales targets while still ensuring the bank continued to be a high-performing organisation that met customer needs.”

ANZ’s Australian parent reported a 5 percent drop in first-half net profit to A$3.17 billion after paying A$175 million to compensate customers for bad behaviour revealed by the royal commission. ANZ has made provisions for another A$533 million worth of customer repayments in the second half.

Earlier today, Westpac announced that compensation to customers for bad advice will shave A$357m off its first-half cash earnings.

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