"The issue for us is, historically, 25% of our business has come from Christchurch," says SBS finance general manager Tim Loan.
Mortgage lending has fallen because people in Christchurch are getting earthquake-related payouts but aren't able to rebuild yet, Loan says
SBS's latest disclosure statement shows its mortgage book fell by $22.7 million to $1.78 billion in the three months ended September, the fourth successive quarter it has declined.
But on the positive side, SBS's liquidity has increased markedly. Its funds with financial institutions more than doubled to $105 million from $48.8 million six months earlier and investment securities jumped $45.5 million to $165.7 million in the same six months.
"We're well-placed to assist with the rebuild in Christchurch," Loan says. Essentially, that comes down to when the earth stops shaking so much.
SBS's net profit near halved to $2.8 million in the three months ended September compared with $5.4 million in the same three months last year, mainly because charges against profit for bad loans more than doubled to $5 million from $2.2 million. The bank's net interest income rose 4.4% to $43.5 million in the three months.
"It would be fair to say the actual losses we're getting through from the earthquake are almost none," Loan says.
Because of this, there's a good chance SBS will release some of that provisioning later on but, because of the uncertainties still surrounding Christchurch, it deems it prudent to keep provisioning high for the moment.
For the first time, SBS provided a break-down of the type of lending its charges for bad loans are coming from. Only $552 million of the $8 million charged against profit in the six months ended September were from residential mortgages, $1.9 million was from retail exposures and the majority, $5.5 million, was from corporate exposures.
Loan says the latter relates to commercial property exposures in Christchurch and to its rural lending, particularly to the viticultural sector in Central Otago which is still struggling. The provisioning also relates to some borrowers who also had loans from second tier financiers such as the collapsed South Canterbury Finance and which have put SBS's loans at risk, he says.
