31/07/2008 - 15:19

HBOS reports 56% net profit slump

31/07/2008 - 15:19


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HBOS, the UK parent company of BankWest, has recorded a 56 per cent fall in net profits for the first half of 2008 due to credit crunch turbulence while earnings at its Australian arm dipped 12 per cent.

HBOS reports 56% net profit slump

HBOS, the UK parent company of BankWest, has recorded a 56 per cent fall in net profits for the first half of 2008 due to credit crunch turbulence while earnings at its Australian arm dipped 12 per cent.

Net profits sank to $A1.95 billion in the six months to June, down from last year's $4.44 billion, the British bank said in a results statement today.

Pre-tax profits plunged by almost 72 per cent to $1.8 billion, compared with $6.3 billion previously.

It also said it suffered a 36% leap in bad debts to $2.7 billion in the first half as hard-pressed customers struggled with repayments.

HBOS, one of Britain's biggest home loan providers, added that group income was stable at $13.57 billion during the first half.

Meanwhile HBOS Australia reported today profit before tax had dropped 12 per cent to $325 million as it funds an expansion program in Australia's east and experiences rising bad loans.

The bank's local results were issued with a warning that the slowing economy had heightened credit risk across the market as a whole.

But HBOS Australia's chief executive David Willis hosed down speculation BankWest itself might be put on the auction block as its parent bank seeks to shore up its financial position by selling assets.

"In the five years that I've been here I think there's been a rumour every month about HBOS Australia or BankWest," Mr Willis told reporters today.

"There's probably been 10 or 15 third parties that we were either going to buy or were going to buy us.

"We don't comment on rumours but as you will see from the press release HBOS is very pleased with the progress to date and that we are continuing to invest a considerable amount of money in our east coast roll-out."

HBOS Australia has long signalled its expectation of booking falling profits in calendar 2008 as its massive roll-out of BankWest branches across Australia's eastern states picks up steam.

But the first half result of its calendar 2008 also revealed the impact of the worsening credit environment that has hit other banks.

Mr Willis said he expected that environment to worsen.

The Scottish lender booked an underlying profit before tax of $325 million, compared to $368 million in the previous corresponding half.

Its underlying net operating income was $1.05 billion, almost 43 per cent higher than the $705 million it received in the 2007 first half.

That figure was bolstered by new customers with 24 new retail stores and 19 business banking centres opened, mainly in Victoria and New South Wales, since it announced its expansion plans in July last year.

Another 19 retail stores and four business banking centres are due to be established in the second half.

The bank has pledged to spend $1 billion to achieve its long-term target of 160 new business banking centres and retail stores.

The cost of funding the eastward expansion pushed operating expenses 24 per cent higher to $566 million, compared to $457 million in the previous corresponding half.

Significantly, impairment losses on loans were $159 million, an 83 per cent increase on the previous corresponding half and 50 per cent higher than the previous six months.

That increase also reflects growth in the overall volume of loans.

As a percentage of average advances impairment losses were 41 basis points, compared to 29 basis points in the second of calendar 2007.

But Mr Willis said impairment losses on loans and advances had increased by less than those reported by the major banks that reported at March first half.

Most of the losses were due to a "small number of higher value corporate accounts", he said.

"We are not seeing a significant reduction in the quality of retail book.

"In fact in the past two months the level of impairments in our business bank and our corporate book has actually levelled off somewhat.

"We don't think this is a permanent feature. We think the market is deteriorating and the level of impairments will go up in the second six months."



Below is HBOS Australia's announcement:


HBOS Australia today announced profit before tax for the six months to 30 June 2008 of £135 million (A$325 million), a decline of 6% for the same period last year (12% in local currency).

The result was underpinned by strong revenue growth of 29% (15% in local currency), and reflects the impact of a 40% per cent increase in expenses from the Group's expansion program (24% in local currency) together with a sharp increase in impairment losses.

HBOS Australia Chief Executive David Willis said "the continued growth of HBOSA has been very pleasing in the context of our long term strategy".

"Our staff numbers continue to expand and now approach 6500 people. They continue to do a terrific job in achieving our objectives."

Mr Willis noted the impact of HBOS Australia's more than £480 million (A$1 billion) investment in an enhanced east coast physical presence through new Bank stores and Business Banking Centres.

"The roll-out is on track and performing ahead of plan. We are delighted with progress to date.

"The impact of this expansion on profit had been flagged in previous results announcements and a normalisation of expense growth would have shown continued profit growth notwithstanding increased impairment charges."

In a market that has deteriorated Mr Willis said the core books remained sound and increases had been principally attributed to a small number of higher value exposures.

Increased stress is expected to occur over the next six months of the financial year consistent with the market outlook.

HBOSplc Chief Executive Andy Hornby said he was pleased with the very good progress HBOS Australia was making across all its key businesses.

"Our national expansion programme is going very well with more branches and business banking centres to be opened before the end of the year. The early indications are that customers like our new proposition," Mr Hornby said.

Underlying net operating income increased by 29% to £474m (up 15% in local currency), reflecting strong growth in net interest income, which increased 33% to £385m (17% in local currency).

Total lending increased from 31 December 2007 by an annualised 39% to £39.6bn (up 17% in local currency), well ahead of market growth with deposits increasing by an annualised 19% to £17.7bn (largely flat in local currency).

Net interest margin remained largely steady at 2.09% (from 2.10 at half year ended 31 December 2007), despite higher funding costs. Impairment loses as a percentage of average advances rose to 0.41% from 0.28% at half year ended 31 December 2007.

While much of the expansion was focused on the east coast, renewed effort has been placed on revitalising and refreshing the network on the west coast.

A number of new locations will open during the second half of 2008 and existing stores given a more customer friendly look.

Work is continuing on the new purpose-built head office for BankWest in Perth, recognising the importance of Australia's fastest growing state to the organisation's long-term plans.


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