TSB reports profit lift and a shift from the internal work to "strengthen its foundations"

But the bank still lags industry performance benchmarks and is gradually losing market share

TSB reports profit lift and a shift from the internal work to "strengthen its foundations"

Mortgage bank TSB has posted an annual tax-paid profit of $38.1 million in its March 2022 annual results – up 6.9% from the $35.6 million in the March 2021 year.

Read more: TSB named New Zealand’s best bank

The results come against the backdrop of significant regulatory developments within the banking industry, including the implementation of changes to the Credit Contracts and Consumer Finance Act (CCCFA).

Read next: CCCFA regulation changes impact loan approvals

TSB chair Mark Darrow said CCCFA changes had undoubtedly made an impact on the bank and its customers.

Despite TSB’s focus on mortgages, with its lending skewed 87.8% towards residential mortgages (up from 86.5% in 2021), the bank was slowly losing market share. Using the RBNZ’s C5 data as the base, TSB had a nationwide home loan market share of 1.77% as of March 2022 – down from 1.88% in March 2020, interest.co.nz reported.

The bank also lagged on margin performance, with the RBNZ Dashboard showing an overall net interest margin (NIM) of 1.9% when most of the large banks are running at 2.1%. This showed a slight improvement, however, from 1.8% over the past four years. In comparison, SBS Bank has a NIM at 2.6%, Heartland at 4.5%, and the Cooperative Bank at 2.3%.

Overall, TSB had a 5.3% return on equity for the full year, but that masked a tough end to the year. This compared to only 2.5% in the March 2022 quarter (as revealed by the RBNZ Dashboard data), after 4.8% in December 2021, 6.5% in September 2021, and 7.0% in June 2021. It’s a trend that is bound to concern its board, the publication wrote, considering that most large banks report a return on equity of 14%-15% (Westpac 11%).

“The last financial year saw a major compliance uplift, a significant upgrade of our systems and technology, an ongoing COVID-19 response, and considerable regulatory developments in the New Zealand banking industry,” Darrow told interest.co.nz.

TSB was confident the recent internal focus to improve its operations were about to shift its performance significantly.

“As a result of the work to strengthen its foundations, TSB is set to turn up the dial on customer service, alongside the release of key products and innovations,” CEO Donna Cooper told interest.co.nz. “There is no doubt that the past 12 months have required some brave decisions about our priorities and resources. There will continue to be challenges to overcome, but we’re in the best possible position to move this very special bank forward. It’s a fantastic place to be.”