Sound risk management helps banks to grow

While the regulatory framework of the banking sector in New Zealand is robust and rigid, commercial banks that have sound risk management strategies will continue to perform well, a top banker has said.

According to Steve Jurkovich, Executive General Manager (Corporate, Commercial & Rural) at ASB Bank Limited, the Global Financial Crisis (GFS) posed a series of serious challenges to businesses in general and commercial banks in particular.

“As a bank that caters to all segments of the economy, ASB had to take balance between rescuing customers affected by the GFS and the Bank’s risk management strategies. While we always keep the interests of our clients in perspective, it is essential to be watchful of our market exposure,” he said during an interview with Indian Newslink.

Largest Banking Group

As a part of the Commonwealth Bank of Australia (CBA- stated to be the largest Banking Group in the Southern Hemisphere), ASB remains largely conservative in its approach to credit expansion, which in turn is reflected in strong capital, high levels of liquidity and robust provisioning.

CBA Group Performance

As a Group, the CBA reported net profit after tax (on a cash basis) of A$8.68 billion as on June 30, 2014, up by 12% over the corresponding period in 2013. Return on equity, measured on a cash basis, increased 50 basis points to 18.7%. Net interest income increased 8% to A$15.09 billion, reflecting 8% growth in average interest earning assets and a one basis point increase in net interest margin. The Group’s other banking income increased by 4% to reach A$4.32 billion.

Mr Jurkovich said that since its establishment 167 years ago, ASB has focused on the customers’ interest, a fair-deal approach and profitable growth.

“However, there has been no compromise between risk and business. We have stood by our customers during the GFS, gone an extra mile to help them manage the tough economic and business environment and helped them achieve reasonable growth – all up to a point where the Banks’s interests are not jeopardised,” he said.

Mr Jurkovich was cautiously optimistic about the rural economy and the farming community but was confident that the dairy industry was in good health. There are short-term challenges, which can be overcome through a number of measures including ‘support from the New Zealand Dollar and interest rate.’

Customer feedback has been positive and clients are aware that as their preferred bank, ASB will stand by them in times of need, subject to circumstances, evolving regulations and other individual factors, he added.

Impressive results

Such a pragmatic policy has helped the Bank to report impressive results.

As at June 30, 2014, the ASB Group’s total assets stood at about $68.38 billion, up from $66.57 billion as at the end of the corresponding period in 2013. Total liabilities rose to $63.21 billion from $61.54 billion, while net profit after taxation was $806 million, accounting for an increase of $101 million over the previous year.

Total Operating Income rose from $1.80 billion as at the end of June 2013 to reach $$1.91 billion this year. Total dividends paid were $415 million, compared to $104 million as at the end of June 2013.

Expressing his personal view on the restrictions imposed by the Reserve Bank of New Zealand on high loan-to-value ratio (LVR) lending, Mr Jurkovich said that shortage of supply against growing demand was the main problem in the Auckland and Christchurch property markets.

“The initial impact has been high but we will wait and see,” he said.

Editor’s Note: As reported in our April 15, 2014 issue, the restrictions have taken the form of a ‘speed limit’ that requires banks to restrict new residential mortgage lending at LVRs of over 80% to no more than 10% of the dollar value of their new residential mortgage lending.

The speed limit on high-LVR lending aims to slow the growth in house prices and housing credit, and mitigate associated risks to the financial system and the broader economy.

Indian community

Mr Jurkovich is proud of the bank’s association with the Indian business community, stating that Indian culture and tradition play a significant part in their commercial ventures.

“Family businesses are growing and the Indian community is adapting well to the changing commercial environment. Our research has shown that family-owned Indian businesses should have in place sound succession planning. We are well-positioned to support them in their process of transition. They are well-educated, have the innovative spirit and are willing to develop new products and processes. Many of them are also involved in international trade. There are exciting opportunities to both ASB and its customers,” he said.

Trade Finance

ASB’s conservative approach extends to its cautious exposure to international trade finance but Mr Jurkovich believes that this sector will dictate the future growth of the New Zealand economy.

“The world economy continues to be volatile and our focus will be as a part of the CBA strategy on a global platform. We also have our checks and controls to address the Anti-Money Laundering and Anti-Terrorism issues,” he said.

Indian Banks

He welcomed the establishment of Indian banks (Bank of Baroda in June 2010 and Bank of India in October 2011), stating that the Auckland market is large and rich with opportunities.

“Offshore banks find New Zealand a good country to establish their presence. We have sound regulatory practices and they have avenues to do well,” Mr Jurkovich said.

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