Steady Improvement with Solid Profit Result

12 May 2004

Bank of New Zealand Completes Half Year of Steady Improvement with Solid Profit Result

Bank of New Zealand today announced a $264 million profit for the half year ending March 2004. The bank’s managing director, Peter Thodey, said that while the profit figure was slightly less than for the same period last year, the last six months had seen Bank of New Zealand repositioning itself to strengthen its place in the New Zealand financial services market.

“Bank of New Zealand has been investing significantly in improvements in service, in new products, and in our information technology, to ensure our improvements in performance continue. As a result, Bank of New Zealand has begun 2004 in a strong position,” Mr Thodey said.

Specifically, in the half year to March 2004, Bank of New Zealand has:

successfully relaunched Campus Pack, its product for tertiary students. Bank of New Zealand grew its tertiary student customer numbers by 60% in early 2004, to nearly 16,000 customers, through an assertive marketing campaign

designed a new product, Smart Money, which is aimed at building Bank of New Zealand’s position in the critical working under-30’s market. Smart Money was launched this week accompanied by new television and print advertising

piloted a $25 million state-of-the-art teller technology system, which is now being installed in more than 170 branches across the country

launched an Internet banking product designed especially for businesses

upgraded its network of 400 ATMs so that they are among the fastest in New Zealand

restored the role of ‘branch manager’ in its branches across the country. Customer response to this initiative has been overwhelmingly positive.

Mr Thodey said Bank of New Zealand’s strong volume growth performance was evident in key data for the half year, including:

home loans: market share up to 15.6% from 15.2% in March 2003. Bank of New Zealand's home loan book grew 19% in the last 12 months while the system grew 16.2% (source: RBNZ plus BNZ data)

term deposits: market share up to 19.4% from 18.8% in March 2003. Bank of New Zealand's term deposits grew 4% in the last 12 months while the system grew 1% (source: RBNZ plus BNZ data)

retail customer numbers up 5.1% to almost 850,000 during the six months to March 2004 (source: BNZ)

Mr Thodey said that, alongside major improvements in products and market share, Bank of New Zealand had continued the strong improvement in customer service performance.

“Over the last two to three years, Bank of New Zealand has set out to improve the quality of service enjoyed by our customers in all of our channels, including through branches, telephone banking and customer call centres, and on the Internet.”

Mr Thodey said the results of that effort were evident during the half year, with the Auckland University survey of residential customers showing Bank of New Zealand as the only bank to improve its position. The Consumer magazine survey of banking, published in April, picked Bank of New Zealand as ‘a big improver’ in service and products.

The latest ACNielsen data also shows an improvement in customer perceptions of Bank of New Zealand service, with the proportion of customers rating Bank of New Zealand service as ‘excellent’ or ‘very good’ up five points in the first quarter of 2004.

“KPMG’s survey of financial institutions performance (FIPs), published last week, summed up the position by saying Bank of New Zealand is now the most promising of the banks in service performance,” Mr Thodey said.

Mr Thodey said the scale of investment by Bank of New Zealand in products, service, and information technology, was one of the reasons for the fall in profit compared to the same period in 2003.

“Bank of New Zealand has been investing in improving its infrastructure and growing market share with new products, and that requires expenditure,” he said.

Commenting on the slightly reduced profit, Mr Thodey said, Bank of New Zealand could not have sustained the strong profit performance that was evident over the last three years.

“The compounded profit increase over the last three years has been an average of 12% per annum after tax. Much of that was driven by remarkably strong economic growth in New Zealand. That growth started slowing down late last year and it will continue to slow down.

“Lower economic growth will continue to be reflected in Bank of New Zealand profits over the immediate future,” Mr Thodey said.

“While I expect a good financial result for the full year, it will not be of the same order as the one in 2003.”

Mr Thodey said Bank of New Zealand had made a conscious decision during 2003 not to increase fees.

“Our intention going forward is to hold the level of fee increases to the minimum as there is a clear co-relation between customer satisfaction and fees. “Indeed, in the case of Smart Money, for people under 30, we are effectively offering customers a fee reduction.”

Mr Thodey said Bank of New Zealand was able to offer customers better prices – on home loans, for example - by using its own retail channels. “One of the reasons we won’t sell our home loans through brokers is because it adds cost in the service chain.

“Brokers receive significant commissions from banks, and those commissions are not always visible to the public.

“In this regard, it is interesting to note that in Australia, mortgage brokers are coming under increasing regulatory scrutiny around commission payments and quality of service.

“The results that Bank of New Zealand has enjoyed in the last year in the home loan market show that our own staff have more than made up for the business that was coming via brokers.

“We want a direct relationship with our customers, and our own staff are the best retailers for our products.”

Key results for Bank of New Zealand for the half year to March 2004 (with data for the half year to March 2003 in brackets) are:

net profit after tax: $264m ($283m) (change: -6.7%)

operating surplus before tax: $360m ($388m) (change: -7.2%)

operating profit before provisions: $374m ($388m) (change: -3.6%) (underlying profit)

total income: $696m ($694m) (change: + 0.3%)

Return on assets for the half year was 1.40%, which easily exceeds the industry benchmark of 1.0%. The net interest margin declined 11 points to 2.45% during the half year as a result of reduced margins in a competitive trading environment.

Ends

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