Co-operative Bank offers $2.5m in rebates to customers

This despite a dip in profit before tax

Co-operative Bank offers $2.5m in rebates to customers

The Co-operative Bank said it will fork out $2.5 million in rebates to its customers – this despite a decline in profit before tax.

As a mutual bank owned by its customers, the bank pays customers rebates from its profits, similar to how rival banks ANZ and Westpac pay dividends to their shareholders.

Co-operative Bank CEO Mark Wilkshire said its full-year profit before tax for the period ending March 31 came in at $18.8m, down from $20.2m in its previous financial year, Stuff reported.

The profit drop, however, was due to movements in the accounting values of the financial instruments the bank uses to hedge risk, with the bank reporting a rise in its “underlying” profit from $18m to $20.6m.

In a challenging year for mortgage lending, Co-operative Bank had been able to raise home loan lending from $2.56 billion to $2.78bn.

The Reserve Bank’s aggressive monetary policy tightening in a bid to put inflation under control had increased banks’ cost of funds, prompting these lenders to bump up their home loan interest rates.

That, in turn, has seen Kiwi households paying a larger chunk of their incomes to banks, and Co-operative Bank’s disclosure statement showed a similar pattern to that of the Australian-owned banks, Stuff said.

In the 12 months to the end of March, Co-operative Bank’s total interest income amounted to $155m, up from $109m the previous year.

But surging interest rates also fed through into higher deposit rates for bank customers. And in the case of Co-operative Bank, the total interest cost rose from just under $37m to nearly $75m.

The bank posted a small lift in provisions for bad debts, the same as its larger competitors, as borrowers struggle with higher loan repayments and an uptick in unemployment.

In its disclosure statement, Co-operative Bank said, “additional provisions have been made with $0.527m added to collective provisions to cover expected deterioration in economic conditions.”

Such a move was “prudent,” Wilkshire said, as he noted that although borrowers had to cope with higher repayments, the bank had not seen a lift in the number of people missing repayments.

The bank said it is replacing its core banking system – a move that will prepare the bank for the arrival of open banking.

“In the coming year, we are making targeted investment in our data infrastructure so that we can adjust to customer needs and preferences and make well-informed fact-based decisions on our products and services,” Wilkshire and chairperson Sarah Haydon said in their report to customers.

“Our most significant future investment is to replace our core banking technology and take advantage of modern platforms that are now available, enabling the bank to deliver innovative products and services for our customers in a fast and more dynamic way.”

Along with the investment in technology is a plan to simplify the bank’s product range – a programme Haydon and Wilkshire said will take several years to complete, Stuff reported.

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