TSB sees big profit fall

TSB Bank has seen its annual profit fall by a quarter to $46.3 million in the year to March 31, on the back of escalating operating expenses.

The bank’s income ratio went from 46.6% to 53.9% which represents a $13.2 million increase in expenses.

It says this covers two "major" core banking platform upgrades, a new lending application system and redesigned website.

TSB’s lending portfolio grew 21.6% compared to 16.9% growth in the previous year. Overall the new Plymouth-based bank has a residential mortgage book totalling $3.83 billion.

The bank’s lending is still highly concentrated on the Taranaki region which accounts for 47% of its residential lending book.

“(Lending) growth was achieved across the country,” chairman John Kelly and managing director Kevin Murphy say in the annual report. “We experienced above market growth in the “golden triangle” area of Auckland, Hamilton and Tauranga which now comprises 35.3% of our total book.”

They attribute the growth to increasing contributions from branches opened in the past couple of years as well as ongoing customer advocacy and referrals.

“We have also increased our mobile mortgage manager network and progressed our relationships with third party business providers, such as brokers, to better serve our customers in a timely and flexible manner.”

“In the home loan market, the downward trend of mortgage interest rates over the last couple of years has reversed largely as a consequence of higher funding costs and tightening margins for banks.“

They acknowledge that Loan to Value Ratio (LVR) restrictions introduced by the Reserve Bank are taking some of the heat out of the housing market.

“We adapted well to working within the LVR restrictions. While there was a general slowing in the residential property investment space, we have continued to secure quality deals, although high LVR lending is not a key target for us.”

TSB, in August, launched a new lending application system to improve its customer lending experience. The system reduces the time to process a loan from application to contract with multiple business efficiencies and customer benefits.

The process mirrors the natural flow of a conversation with a customer and automates aspects of the process by pulling data from other platforms from both within and outside our systems.

“We have already realised benefits from the process for both our employees and customers through improved efficiency, less double-handling and more transparency,” they say.

The lending system is being implemented in phases with standard residential lending already launched and increased functionality is being introduced every month with personal loans, complex residential lending (involving trusts, companies and guarantors) in process

Key Numbers

• Profit after tax down from $61.56 million to $46.34 million
• Operating expenses up $13.2 million, to $80.2 million
• Net operating income rose 3%, to $148.8 million
• Net interest margin fell eight basis points to 2.01%
• Cost of funds dropped 78 basis points to 2.79%