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Speaker 1: Nine two nine two texts. That's the text number standard

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Speaker 1: text fee supplied Barry SOOAP will have more to say

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Speaker 1: than to order off level after five o'clock. Now, let's

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Speaker 1: talk about banks, because yet another bank has posted an

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Speaker 1: increased profit. A and Z New Zealand has reported an

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Speaker 1: after tax profit of two point five billion dollars for

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Speaker 1: the year to September, which is up more than twenty percent.

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Speaker 1: Antonia Watson is the chief executive and is with us

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Speaker 1: now high Antonia, Hi, Heather, Now, how are you guys

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Speaker 1: doing so well when the economy has been such a turd?

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Speaker 1: Really well?

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Speaker 2: I have to first story your attention to these strange

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Speaker 2: things called economic hedges, which are a fluctuating big number

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Speaker 2: due to accounting treatment. And if you look through that,

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Speaker 2: it's based on it's basically us valuing our derivatives boring.

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Speaker 2: If you look through that and you look at our

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Speaker 2: actual underlying customer business, our profit is up four percent,

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Speaker 2: which is about the same amount that our lending was

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Speaker 2: up and our deposits were up, so growing our profits

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Speaker 2: growing in line with the growth of our balance sheet.

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Speaker 1: Okay, so up four percent, but still Antonia, up four

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Speaker 1: percent at a time when the economy is going backwards

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Speaker 1: by you know, one percent in a quarter. How did

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Speaker 1: you manage to do that?

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Speaker 2: So a couple of things. One is that we grew

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Speaker 2: our balance sheet and the other one is the other

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Speaker 2: main one is that, you know, in a sign of

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Speaker 2: green shoots, as we said in our media release, we've

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Speaker 2: actually released some of the credit provisions that we took

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Speaker 2: in previous years. So last year we had a charge

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Speaker 2: and this year we've had a release.

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Speaker 1: How much you be growing a balance sheet by just

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Speaker 1: out of interest?

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Speaker 2: Over two hundred billion dollars. It's the size of our

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Speaker 2: assets on our balance sheets. So while I understand that

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Speaker 2: people really think it's a big I mean two point

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Speaker 2: five were underlying two point three is a big number.

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Speaker 2: But we're a really really big company.

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Speaker 1: Yeah. Are we paying more in interest margins in New

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Speaker 1: Zealand than the Aussies are.

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Speaker 2: A little bit more so when we do a direct

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Speaker 2: light for light comparison with our Australian business, we pay

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Speaker 2: New Zealanders pay about twenty one basis points more. That

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Speaker 2: is more than accounted for by the additional capital that

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Speaker 2: we need to hold in New Zealand.

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Speaker 1: So when the reform coalition, the Banking Reform Coalition said

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Speaker 1: if the margins were the same as A and Z

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Speaker 1: Australia's margins, our mortgages would be one hundred basis points lower.

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Speaker 1: Are they wrong?

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Speaker 2: They are comparing apples and oranges. They're comparing then the

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Speaker 2: margins in New Zealand to the margins of our entire

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Speaker 2: A and Z group in every country including New Zealand,

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Speaker 2: and importantly includes our institutional business, which has a big

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Speaker 2: markets business that doesn't focus on margins. It focuses on

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Speaker 2: returns and it has a big The rest of the

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Speaker 2: institutional business focuses a lot on other operating income, not

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Speaker 2: just margin because they get fees for transaction bands.

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Speaker 1: So in New Zealand and bananas, really our net interest

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Speaker 1: margin is two point six percent. Yeah, in New zct

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Speaker 1: and what's the Australia for.

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Speaker 2: And if you could so if you add together, if

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Speaker 2: you add together the same equivalent businesses, which is our

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Speaker 2: retail business and our business and private banking business, there's

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Speaker 2: is two point three nine percent, so twenty one basis

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Speaker 2: points lower.

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Speaker 1: Okay, why do we pay more?

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Speaker 2: As I said, we have, we're required to hold more

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Speaker 2: capital in New Zealand. And when you think about our capital.

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Speaker 2: Our shareholders invest nearly twenty billion dollars in our business

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Speaker 2: and we have to provide them a return on that.

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Speaker 2: They've had to invest another one point two billion this

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Speaker 2: year alone, just because of the increased capital requirements from

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Speaker 2: the rbn Z. That would translate into a ten basis

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Speaker 2: point increase in capital if we were to hold returns flat.

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Speaker 2: So the fact that we've increased our NIM by three

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Speaker 2: basis point not ten, just shows that the shareholders are

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Speaker 2: wearing some of the increase in capital, not just the customers.

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Speaker 1: Okay, so Nicola will listen them are obviously attending to this.

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Speaker 1: At the moment, when it's all sorted, will we be

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Speaker 1: paying the same in the interest margin as the Australians.

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Speaker 2: Well, it depends on what is sorted, because at the

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Speaker 2: moment the proposals from the Reserve Bank, one of them

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Speaker 2: makes us hold more cet one capital, which is the

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Speaker 2: most expensive form of capitals. It's not going to happen though,

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Speaker 2: you know that, Well we'd like to hope not. But

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Speaker 2: the other one requires us to hold more in sort

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Speaker 2: of at all, like instruments all together. So at the moment,

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Speaker 2: the proposals don't really change the dial match neither, and

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Speaker 2: of course don't know and don't forget hither. Also that

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Speaker 2: we're talking about stopping increases going forward, we're not going

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Speaker 2: back in time, so we're not going to really expect

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Speaker 2: significant reductions and interest. We're just going to expect less

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Speaker 2: pressure on mats going up.

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Speaker 1: Okay, So Antonia, if we took away, if we took

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Speaker 1: that away all together and we flattened it out to

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Speaker 1: the same place in terms of capital requirements as the

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Speaker 1: Australians would be paying the.

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Speaker 2: Same we'd be well, if we allowed for the amount

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Speaker 2: of capital they hold and did nothing else, we'd actually

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Speaker 2: be paying a little bit less here.

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Speaker 1: Well, that sounds awesome. I like that. I've got to

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Speaker 1: ask this question. You're going to hate it. Are you

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Speaker 1: getting a bonus?

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Speaker 2: Yes? I am. You'll be able to see that in

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Speaker 2: the room reports on trubished today. It's very complicated, but

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Speaker 2: overall this year I'll be paid just under two point

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Speaker 2: eight million dollars.

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Speaker 1: Nice, you got any plans with it?

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Speaker 2: Invested wisely?

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Speaker 1: And you do not have to answer, Tony, You're so game,

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Speaker 1: you don't have to answer that question.

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Speaker 2: Mate.

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Speaker 1: What you say is bugger off here than none of

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Speaker 1: your business. Listen. Thanks thanks very much, I really appreciate

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Speaker 1: your time. There an Tonia Watson A and Z in

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Speaker 1: New Zealand's chief executive.

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Speaker 2: For more from Hither Duplessy Allen Drive, listen live to

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Speaker 2: news Talks it'd B from four pm weekdays, or follow

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