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NZ’s five major banks report lending up, but profits down

1 February 2013

New Zealand’s five major banks report lending up, but profits down

• The five major banks post the biggest growth in their lending books since 2009 – up $5.2 billion.
• Pre-tax profits decreased 11%, down $261 million for the second half of their 2012 financial years.
• Competitive household and corporate lending markets.
• Bad debt expense plateaus.

New Zealand’s five major banks (ANZ Bank New Zealand, ASB, Bank of New Zealand, Kiwibank and Westpac) posted their biggest growth in lending since 2009, in the second half of their 2012 financial years. Yet, they saw pre-tax profits decrease 11% compared with the previous six months.

According to today’s release of PwC’s New Zealand Banking Perspectives, the banks’ combined pre-tax profits in the second six months of their 2012 financial years were $2.17 billion, down from $2.44 billion reported in the first six months of their 2012 financial years.

The $261 million fall in pre-tax profits was driven by a reduction in other operating income (down $156 million), increasing operating expenses (up $102 million), while net interest income and bad debt expense both stayed flat. However, when examining their collective annual results, pre-tax profits for their 2012 financial years were up 6% ($253 million) when compared to the previous twelve months results.

PwC Partner and Banking Sector Leader Sam Shuttleworth says, “The five major banks’ income is down and costs are up as increasing regulatory pressures and strong competition in the lending market drive down earnings and mask what is pleasing market growth.

“Borrowing rates are dropping as homeowners and businesses aggressively renegotiate interest rates, even in the middle of fixed rate periods. In this competitive environment, the banks are playing ball as they focus on the longer game of increasing the value of their lending books by locking more customers into fixed rate mortgages and an easing of pricing to corporate customers.

“A $5.2 billion increase in the value of the banks’ lending books in the second half of the banks’ 2012 financial year cannot be interpreted as a bad result for the banks and is a great indicator of improved confidence and stability in the economy. In fact, it’s the first time the corporate sector has recorded two consecutive periods of lending growth since 2009.

“As the banks compete to attract borrowers in this low growth market, they need to resist the temptation of reducing their interest margins too far if we wish the New Zealand banking system to retain its global reputation as a safe banking environment,” adds Mr Shuttleworth.

The fact the banks are performing well is reflected by all five of the New Zealand majors (or their relevant parent banks) appearing in Global Finance Magazine’s World’s 50 Safest Banks list for 2012, with the New Zealand banks continuing to be viewed positively by the global financial markets when funding is required. This has been reinforced by a further strengthening in the capital levels for the New Zealand major banks.

“With the Reserve Bank of New Zealand responding to the global regulatory environment, banks have faced additional regulatory-driven changes. What sets the current environment apart is the sheer volume of significant new regulation being introduced. Indeed, the regulations require banks to address the way they do business and so it commands a significant part of their annual budgets.

“Meeting the cost of increased regulation is one of the drivers that have forced operating expenses up in the current period and 16% since the first half of 2010. Ultimately, this cost is borne by the banks’ borrowers and shareholders through higher interest rates and a reduction in dividend yields to shareholders,” says Mr Shuttleworth.

Other operating income was down principally on the back of further losses being recognised on financial instruments held at fair value.

Bad debt expense for the banks has levelled out at $279 million, compared with $277 million for the first half of the banks’ 2012 financial years, but importantly, the early indicators for bad debt expenses show continuing signs of improvement.

“While we do not expect any significant change to bad debt expense in the household sector, we can expect the non-household sector to continue its downward trajectory. In saying that, with the New Zealand property market flourishing again, particularly in Auckland and Christchurch, the outlook looks more positive for banks,” concludes Mr Shuttleworth.

This paper takes a look at the recent results of the four major Australian-owned banks that operate in New Zealand – Westpac (including Westpac New Zealand Limited), CBA (including ASB Bank), ANZ (including ANZ Bank New Zealand) and BNZ, as well as Kiwibank. Kiwibank has been included because although it is smaller in size than the four majors, it has had a high profile impact on the local market.

The report covers the reported results for the second halves of the banks’ respective 2012 financial years. The report is based on information publicly available. PwC’s New Zealand Banking Perspectives Major Banks Analysis is available at

Our report can also be downloaded as an iPad app (on our website or from the Apple apps store).

About PwC
PwC helps organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with more than 180,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see for further details.


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