KPMG: Continued growth for financial institutions
2 May 2000
For immediate release
KPMG survey points to continued growth for
After a year of record profitability in 1999, New Zealand registered banks can expect to continue their strong performance during 2000, the Chairman of KPMG’s Banking and Finance Group, Andrew Dinsdale said today.
Mr Dinsdale was launching KPMG’s 14th annual Financial Institutions Performance Survey which reports and comments on the performance of banks, finance companies and other financial institutions.
“The strong performance of financial institutions reflects the fact that the New Zealand economy boomed over the second half of the year,” he said. “We expect the recovery to continue over the next 12 months, driven by improved export growth.
“As a result, there is every prospect of further asset growth for New Zealand financial institutions during 2000.”
The survey records that registered banks achieved a 10% improvement in underlying performance to $2.24 billion compared with $2.03 billion in 1998 and $1.68 billion in 1997. Total assets increased 8% to $150 billion compared with $139 billion in 1998.
While operating income for the sector increased by 6%, operating expenses generally decreased. As a result, the sector’s cost-income ratio fell from 62% to 57%.
The survey records the results of a benchmarking comparison between Australian and New Zealand banks. Major banks on both sides of the Tasman reported increased profitability in 1999, with New Zealand Banks returning the stronger performance. Combined total net profit in New Zealand was up 35% compared with 31% in Australia.
Mr Dinsdale said continued growth would depend on the extent to which financial institutions could meet the challenges posed by technology, the erosion of boundaries in the financial services sector and the need for institutions to retain their most profitable customers.
The survey also notes that the sector continues to be extremely competitive. It cites as evidence the increasing number of participants, particularly in the non-bank sector and the further contraction in interest rate margins.
“Net interest income increased by $170 million but the weighted average interest rate margin of 2.45% is the lowest since we began tracking interest rate margins in the survey. The decline continues the trend of the past four years.
“The registered banks have acknowledged that the pressure on interest margins means there is less ability to subsidise the cost of other services provided to the banks’ customers.”
Mr Dinsdale said branch networks continue to shrink in the face of the challenge from ATMs, telephone banking, EFTPOS, mobile banking officers and internet banking. In 1999, the total number of bank branches decreased by 12 percent, compared to a 10 percent decrease in 1998. The largest decrease in branch numbers was recorded by the National Bank which closed 61 branches as it continues to rationalise its branch network following the acquisition of Countrywide Bank in 1998.
The survey notes that customer concern over fee levels and branch closures has provided the impetus for the proposed establishment of a “people’s bank”. Mr Dinsdale says KPMG reserves its position on the concept until more details are available.
“We are aware of the comments of Dr Murray Horn (Managing Director of the ANZ Bank) who pointed out that few customers are interested in the low cost options the major banks provide, preferring instead the more sophisticated and necessarily expensive alternatives.
“In the last 10 years there has clearly been a reduction in branch outlets, but a far greater increase in alternative service delivery channels. For many people the local garage, dairy or supermarket has become a quasi bank.”
Each year the survey ranks financial institutions based on performance and profitability measures. BNZ regains the top ranking this year after being displaced by WestpacTrust in 1998, although the gap between the two is small. ANZ improves one place to third and National Bank is fourth. ASB has fallen to fifth place from third in the past two years.
Following its acquisition of Bankers Trust, Deutsche Bank has become the largest branch bank operating in New Zealand, excluding WestpacTrust. The Hongkong and Shanghai Banking Corporation is now second largest, with AMP Bank the third largest branch bank in New Zealand.
For further information contact:
Chairman, Banking and Finance Group, KPMG
Telephone 04 802 1214 or 025 437 354