BNZ Finance tax boost

Press, 19 April 1989, Page 38

BNZ Finance tax boost

BNZ Finance announced a record tax-paid profit of $25,545,000 for the year ended March 31, a 14.3 per cent increase over the previous year. The company is 70 per cent owned by the Bank of New Zealand.

The chairman, Mr R. J. Campbell, said the result was achieved during one of the most difficult and demanding periods in the company’s history. “Negative economic growth, rapidly rising unemployment, poor business profitability, and general pessimism have had a dramatic impact on the banking sector.” The company generated gross income ol $216,260,000 (last year $235,626,000), earned profit before taxation of $27,468,000 ($38,350,000), and provided for taxation of $1,923,000 ($16,008,000). “Although the after-tax profit for the 1988-89 year was a record result for BNZ Finance, the company’s pre-tax profit of $27,468,000 was less than budgeted and declined 28.4 per cent compared with the previous year’s pre-tax profit of $38,350,000. “The decline in pre-tax profit, which was more than offset by the lower corporate tax rate, re-

fleeted born a lower interest rate environment and the extremely difficult trading conditions experienced by all financial intermediaries operating in the New Zealand market place during 1988,” he said. “The tax-paid profit is equivalent to an annual earning rate of 20.9 per cent on average shareholders’ funds, and a 71.9 per cent return on average capital. Mr Campbell said that BNZ Finance’s balance sheet at March 31 reflected a very conservative position, with shareholders’ funds of $134,849,000, and total

assets of $1,229 billion, resulting in a gearing ratio of 10.97 per cent. This compares with shareholders’ funds of $109,883,000 and total assets of $1,282 billion a year earlier. The gearing ratio last year was 8.5 per cent. Provision for bad debts has risen from $2.3M to SB.6M. Changes in assets include a fall in bank negotiable securities of S4ISM last year to SIB2M, and a rise on Government securities from S9.BM to $136.6M. The directors recommend a final dividend of 16.5 per cent (4.125 c a share) which together with the interim dividend of 13.5 per cent (3.375 c a share) makes a total payment for the year of 30.0 per cent (7.5 c This is equivalent to the dividend paid in respect of the previous year. The final dividend, whether paid in cash or by way of bonus shares, will carry a full imputation credit. “A major cost for the company during the year has been bad debt writeoffs and increased specific provisions, totalling $13,522,000, which have been fully absorbed in the profit result. Although BNZ Finance has consistently applied conservative

lending policies and has had limited exposure to the corporate sector, the increasingly severe effect of the economic recession continued to impact on the company’s loan portfolio.”

Mr Campbell said that the company expected to return to more normal provisioning during 198990 as a consequence of early and vigorous arrears management and cautious new lending during the 1988/89 year. In a review of BNZ Finance’s assets, the general manager, Mr R. A. Bonifant, said that of the company’s $1.2 billion in assets, $485 million comprised securities issued or guaranteed by the New Zealand Government and registered bank negotiable securities and short term deposits. A further $2Ol million comprised securities held by BNZ Finance which were in turn collateralised by registered bank securities, letters of credit, or guarantees.

Excluding producer board and State-owned enterprise securities, the company had at March 31 a balance of $471 million of loans and advances to predominately commercial and “high net worth individual” sectors. Loans

are secured either by mortgage or charge over specific assets, and are spread geographically and across industry sectors. “The spread of credit risk has been a matter of prudent policy by BNZ Finance during the 1988/ 89 year. The profile of the company’s asset structure is such that is has little relationship to the credit risk commonly associated with the description ‘finance company’ ” said Mr Bonifant. “A feature of the 1988/ 89 financial year was the high profile collapse of a number of publicly-listed companies and various small finance companies. “These events made for a generally nervous investment market with depositors more concerned than ever about the absolute safety of deposit funds.” Mr Bonifant said that despite this nervous environment BNZ Finance continued to enjoy strong support from a large depositor base throughout New Zealand. Mr Campbell said: “BNZ Finance remains in a strong financial position with conservative gearing, high levels of liquidity and good trading profitability.”