ASB profit falls to $1.3 billion as a class action settlement drives costs up 16 percent

ASB has reported a cash net profit after tax of $1,318 million for the year to 30 June 2026, down 2 percent on the previous year, with the cost of settling a long-running class action doing most of the damage to the bottom line.

On a statutory basis, which is the measure most other companies report, profit fell 4 percent, or $51 million, to $1,398 million. The bank is the first of the four big Australian-owned lenders to report a New Zealand result this year.

Income actually grew. What went backwards was the gap between what came in and what went out. Operating income rose 5 percent to $3,667 million, while operating expenses climbed 16 percent to $1,645 million. That pushed the bank’s cost to income ratio up 390 basis points to 46.4 percent, meaning ASB now spends about 46 cents of every dollar of income on running itself, up from about 43 cents a year earlier.

The single largest item in that cost jump was a $135.6 million settlement of a class action brought on behalf of borrowers. The case concerned whether ASB gave customers legally compliant written disclosure when they asked to change their lending arrangements between 2015 and 2019, an obligation under the Credit Contracts and Consumer Finance Act. The bank agreed to settle in October last year after four years of litigation, making no admission of liability or wrongdoing. About 191,000 customers were covered by the claim, and the settlement required High Court approval. ANZ, the other bank sued in the same action, has not settled and is still defending the case.

Beyond the settlement, ASB added 360 full time equivalent staff over the year, taking its headcount to 7,114, with much of the growth going into technology work, financial crime capability and product simplification. General inflation across the bank’s supplier and wage costs accounted for the rest.

On the revenue side, net interest income rose 6 percent to $3,256 million and the bank’s net interest margin widened three basis points to 2.30 percent. That margin is the difference between what a bank earns on its lending and what it pays for the money it lends out, and a three point move on a book of this size is worth real money. Total net lending grew 6 percent to about $122 billion.

Home lending, business and rural lending and customer deposits each grew 6 percent. The business book was the standout. ASB says it wrote roughly three times as much new lending to business and farming customers as it did the year before, its strongest business lending growth in almost a decade. Its large business book grew $436 million, or 8.6 percent, against market growth of 3.4 percent, and ASB Rural lifted its share of agriculture lending to 17.7 percent.

Chief executive Vittoria Shortt said the bank “maintained strong momentum in business banking in a very competitive market”.

Bad debts rose but stayed modest. Impairment losses on loans increased $18 million to $78 million, an increase of about 30 percent on a low base. Shortt said households had held up better than the headlines might suggest.

“While it’s been a challenging time for some, by and large our customers appear to have weathered the storm well, with fewer households experiencing loan difficulties,” she said.

Her description of the year will be familiar to anyone running a business through it. “The economic recovery has been very stop-start,” Shortt said. “Although we had momentum at the beginning of the financial year, it’s been a very different second half. The conflict in the Middle East and subsequent global oil price shock have caused significant disruption, changing the inflation outlook and pushing interest rates up faster than anticipated.”

That is a fair account of the past six months. Fuel costs climbed sharply after the disruption to Middle East supply, annual inflation is expected to have peaked at 3.9 percent in the June quarter, and the Reserve Bank lifted the official cash rate to 2.50 percent in July, reversing part of the easing cycle borrowers had been counting on. For a bank, that combination cuts both ways. Higher rates support margins, but they slow the credit growth that drives profit over time.

Shortt said the bank expected activity to pick up, while warning that the pressure on households has not gone away. “While we expect economic momentum to return in the coming months, uncertainty remains the new norm and we’re cognisant that many New Zealanders will continue to face cost pressures,” she said. The bank was “working closely with customers and are ready to support New Zealand as it puts its foot back on the pedal in FY27”.

One number worth watching sits below the profit line. ASB paid dividends of $375 million to its Australian parent, Commonwealth Bank of Australia, down from $1.1 billion the year before. Bank dividend payments swing around for capital management reasons rather than as a signal of confidence, but a drop of that size means a much larger share of the year’s earnings stayed on this side of the Tasman.

The wealth side of the business grew faster than the bank. KiwiSaver funds under management rose 15 percent to $21.7 billion across close to 500,000 members, and total funds under management were up 17 percent to $27.7 billion. ASB also committed $430 million in lending to social and affordable housing over the year and $108 million to Māori housing, meaning housing developed by iwi and Māori organisations.

The bank told interest.co.nz it is beginning a programme of work to streamline its practices and produce better outcomes for customers, alongside the existing push to modernise its technology and simplify products and processes. After a year in which a disclosure failure from a decade ago cost it $135.6 million, the incentive to get the paperwork right is not hard to see.

ASB reports earlier than its rivals because it balances its books at the end of June rather than the end of September. Results from ANZ New Zealand, BNZ and Westpac New Zealand are due later in the year, and they will show whether the pattern in ASB’s numbers, decent lending growth, steady margins, rising costs and slowly rising bad debts, is a New Zealand banking story or an ASB one. RNZ reported the result on Wednesday.

Do you bank with ASB, and has your experience of the past year matched the picture the bank is painting? Tell us in the comments below.

This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job 🙂