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Regulator’s focus on overseas banks

7 December 2004

Minnows may benefit from regulator’s focus on overseas banks

The attention being paid by regulators to the affairs of large, foreign-owned banks may work to the advantage of the industry minnows - the regional savings institutions, advisory firm KPMG reported in its survey of the savings sector released today.

KPMG’s Banking and Finance Group surveys financial institutions as part of its annual Financial Institutions’ Performance Survey. It includes savings institutions with individual total assets in excess of $30 million in the survey.

“Savings institutions pride themselves on their heritage of family-based banking and the fact that they are locally owned and operated,” said KPMG’s Chairman, Banking and Finance Group, Andrew Dinsdale.

“They continue to market themselves as alternatives to their bigger brothers, not on the products they provide but on their personalised delivery of those products.

“With New Zealand regulatory bodies focusing on the management and capital of foreign-owned banks, savings institutions could become well-placed due to their domestic grounding in New Zealand’s banking sector.”

The survey reports that the savings institutions have continued to experience strong growth on the back of their stellar growth in 2003. Total assets grew 13.5% in the year compared to 15% last year.

Mr Dinsdale says mortgage finance continues to dominate lending profiles. But he warns that the demand for mortgage finance will have a significant influence on future growth.

“The prospect of volatile house prices in the coming years may force savings institutions to adopt more conservative lending policies. In the midst of the current speculation surrounding the housing market, impressive growth levels seen in recent years could be set to stagnate in the near future,” he said.

For the moment, the survey records improving performance by the sector as a whole, Underlying performance – a measure of net interest income, plus non-interest income, minus operating expenses – increased by 13% for the sector, considerably less than the 32% recorded last year, but still a satisfactory result.

Net profit after tax growth was similarly lower than last year, down from a heady 35% ($25.2 million) to a more modest 9.8% ($28 million).

The outstanding performer this year was the Hastings Building Society which recorded a $27.6 million increase in lending assets (up 31%), the largest percentage increase in the sector for the second year in a row.

“The growth comes as no surprise given the recent expansion into Napier and the current building boom in the Hawkes Bay,” said Mr Dinsdale.

In spite of this, the sector continues to be dominated by Southland Building Society, PSIS Limited and Southern Cross which account for almost 80 percent of the total assets.

The growth recorded by Hastings Building Society lifts it above Nelson Building Society into fifth place.

The nine savings institutions – Ashburton Building Society, Hastings Building Society, Loan and Building Society, Nelson Building Society, PSIS Limited, SMC Building Society, Southern Cross Building Society, Southland Building Society and Wairarapa Building Society – provide housing mortgages and personal lending funded by retail deposits.

Editor’s note: the survey analyses figures for savings institutions taken from annual financial statements to 30 June 2004.


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