CBA’s ASB Bank Disrupting Trade Finance Via Blockchain Technology

New Zealand's First Savings Bank, ASB Bank, currently owned by Commonwealth Bank of Australia (ASX: CBA), recently launched the country's first bank blockchain single trade window. With the launch of this trade window, ASB is now able to improve the trade process for its customers via block chain technology.

As we all know that trade finance invoicing is a crucial element of World Trade, the launch of New Zealand’s first bank blockchain single trade window by ASB, is a significant new chapter in the history of New Zealand sharing its products with the rest of the world.

Nowadays, many corporates and big international firms are showing interest in adopting emerging trade technologies to facilitate their cross-border transactions. Trade finance blockchain technology is one of those emerging technology which is helping firms in digitizing their transactions and helping them in making deals more economical.

The trade finance blockchain technology window launched by ASB will not only help it in reducing the time New Zealand exporters need to spend on documentation throughout the trade process, it will also help in reducing the risks of fraud and cyber security threats.

Blockchain-enabled supply chain allows partners to access key documents, such as a bill of lading, certificates of origin and other important documents and bills which are submitted to customs, facilitating a faster and more trusted relationship between the exporter and their customer and improving the economics of the overall deal or transaction.

At the documentation level, the blockchain enabled supply chain is allowing partners to access key documents, creating the potential for multi-beneficial productivity gains to the supply-chain and improving the overall efficiency.

Blockchain technology provides many befits in trade financing, which includes:

  • Shorter delivery time for trade documents;
  • increased transparency by sharing transaction details with all parties; and
  • Reduction of time required to crate and transmit documents, as well as labour and other costs through document digitalisation;

ASB Bank recently released its full year results for FY19 in which it reported a statutory NPAT of $1,274 million, representing an 8% growth on FY18. ASB’s Cash NPAT was $1,191 million in FY19, up 4% on pcp. The slowing credit growth in the business and consumer finance sectors resulted the underlying profit of ASB was more subdued in FY19.

In FY19, ASB was awarded 2019 Bank of the Year – Home Loans by Canstar.

During the year, ASB’s cash net interest margin (NIM) decreased by 3bps to 221bps as compared to pcp, impacted by the higher funding costs and a continued customer preference for fixed rate loans, partly offset by lower costs relating to customers breaking fixed rate loans.

In FY19, ASB’s impairment losses on financial assets rose by 35% to $108 million. On a cash basis, ASB’s cost to income ratio for FY19 was 35.6% and its operating income growth in FY19 was 5%.

Key financial points of ASB in FY19:

  • Cash NPAT of $1,191 million, an increase of 4% on the prior year:
  • Statutory NPAT of $1,274 million, an increase of 8% • Cash net interest margin decreased by 3bps to 2.21%:
  • Advances to customers up 6% to $88 billion;
  • Impairment losses on financial assets increased by 35% to $108 million;
  • Customer deposits up 6% to $66 billion;
  • Continued momentum in funds management with 13% income growth;
  • Cost to income ratio (cash basis) of 35.6%, an improvement of 40bps;
  • Operating expenses increased by 4%;

The owner of ASB Bank, Commonwealth Bank of Australia (ASX: CBA), has also recently released its full years of FY19. For FY19, CBA reported Statutory NPAT of $8,571 million, Cash NPAT of $8,492 million with Cost to income ratio of 46.2%. CBA reported dividend per share of $4.31, flat on pcp.

FY19 Results Snapshot (Source: Company Reports)

FY19 results are reflecting the actions CBA has been taking to build a simpler, better bank –including the costs of simplifying business, remediating customers to fix past issues, as well as investing in better customer and risk outcomes.

FY19 results are demonstrating the continued strength, and momentum CBA has maintained despite facing challenges of lower credit growth and low interest rates.

The strength of CBA balance sheet across funding, liquidity and capital metrics was another positive feature in FY19, with Common Equity Tier 1 capital ratio at 10.7%, above APRA’s ‘unquestionably strong’ benchmark of 10.5%.

While progressing on its strategy of becoming a simpler bank, CBA has sold its New Zealand life insurance business, Sovereign, for $1.3 billion, and is now making progress on the divestment of its Australian life insurance business, CommInsure Life.

Recently, CBA completed the sale of its global asset management business, Colonial First State Global Asset Management, for $4.2 billion and along with that it also announced the exit of its aligned financial advice businesses, namely the sale of Count Financial, the cessation of CFP-Pathways and the assisted closure of Financial Wisdom.

CBA has been making changes to its policies, products and processes to ensure that it deliver better customer outcomes. This includes CBA’s commitment to improve the financial wellbeing of its customers by removing and reducing fees, and by introducing smart alerts to help customers avoid fees.

During FY19, CBA joined hands with the CSIRO’s Data61 to develop a world leading ‘Making Money Smart’ app using blockchain technology.

Stock Performance: On a stock performance front CBA’s stock has provided a return of 4.75% in the last six months as on 27 August 2019. On a year to date basis, CBA’s stock has gained 8.71%. CBA’s stock is trading at a PE multiple of 15.890x with an annual dividend yield of 5.59%. CBA’s stock has a 52 weeks high price of $83.990 and 52 weeks low price of $65.230 with an average volume of 3,174,677. At market close on 28 August 2019, CBA’s stock was trading at a price of $76.770 with market capitalisation of circa $136.57 billion.


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