KPMG Banking Survey Points To Slower Growth
Concerns about the global economic outlook and the emergence of new competition pose the only significant obstacles to New Zealand banks building on their past record of successful performance, the Chairman of KPMG’s Banking and Finance Group, Andrew Dinsdale said today.
Mr Dinsdale was launching KPMG’s 15th annual Financial Institutions Performance Survey, which reports and comments on the performance of banks, finance companies and other financial institutions.
“The 2000 year was another period of record profitability for New Zealand’s registered banks,” he said. “They achieved improvement in most of the key drivers of profitability – asset growth, non interest income growth and cost control.
“Significantly, they recorded a 16% improvement in underlying performance, being the key measure of operating income less operating expenses. This compares with an increase last year of 10%. Underlying performance reached $2.6 billion compared with $2.2 billion last year. This was underpinned by strong growth in total assets of 16.5%.”
The total assets of registered banks continued on what has been a steady upwards curve since 1993, reaching $175 billion. However, Mr Dinsdale warns that the advances made over the past decade, may not continue at the same rate. He points to the March 2001 quarter fall in business confidence, prompted by concerns about the global economic outlook as well as a slowdown in retail lending during 2000, most notably in the property sector.
“There is a realisation that the virtual bank concept will not necessarily replace customers’ requirements for a wider relationship and therefore alternative means of communicating and transacting with their bank.
“This, combined with the industry’s profitability, has convinced new entrants to enter the retail banking market. Both the Warehouse Group and New Zealand Post have strong, well established brands and look ready to utilise their large customer bases and nation-wide outlets to offer banking services.”
Mr Dinsdale says New Zealand Post’s “New Bank” is likely to change the dynamics of the retail banking industry.
“The result could well be lower fees, special interest rate deals on deposits or even a sharpening of interest rates. That said, it’s hard to imagine an interest rate war developing because interest margins, at 2.6% for New Zealand’s major banks, are low by international standards.
“’New Bank’ will be in a unique position to reshape customer service experience. If it can achieve a new level of customer satisfaction, without the ‘baggage’ of an existing customer base, then the conversion rate of new customers may be considerable. Only time will tell.”
In the expectation of greater competition, Mr Dinsdale says the Survey indicates banks are working harder on building customer satisfaction as well as seeking continued efficiencies. These developments confirm New Zealand as having one of the most competitive and well served banking sectors in the world.
He said the lending profile of New Zealand registered banks has not changed significantly from last year. It remains dominated by mortgage lending, which makes up 47% of total lending. However, the area of greatest growth was commercial and financial lending.
Mr Dinsdale says technology still demands a significant amount of banks’ investment spending and is determining the way banks operate and interact with their customers. All the major banks have successfully introduced internet banking as they strive for a more cost effective means of meeting the needs of customers.
EFTPOS continues to be the most popular means of payment. The total number of EFTPOS transactions in 2000 reached 483.8 million, up from 450.3 million in 1999. The use of credit cards continues to grow, up 3% to 13% of non cash payment types.
Branch networks continued to shrink but not at the same levels as during the early or mid ‘90s. Numbers decreased by 20 branches, down 2% on 1999. Total staff numbers reduced by 3%.
Each year the survey ranks financial institutions based on performance and profitability measures. This year, National Bank achieved top ranking followed by Bank of New Zealand and ANZ Bank, WestpacTrust and ASB Bank. WestpacTrust is the country’s largest bank in terms of total assets and bottom-line profitability.
For further information
Chairman, Banking and Finance Group
Telephone 04 802 1214 or 029 437 354