NZ banks' performance indicate confident and growing economy
The performance of New Zealand’s banks indicate a confident and growing economy
New Zealand’s five major banks (ANZ Bank New Zealand, ASB, Bank of New Zealand, Kiwibank and Westpac) have continued to show good growth in the second half of their 2013 financial years (2H13).
According to New Zealand Banking Perspectives, today released by PwC New Zealand, profit before tax increased by 10% or $244 million to $2,704 million in 2H13. These results were driven by increases in net interest income and other operating income, flat operating expenses and a decline in bad debt expenses.
PwC Partner and Banking Sector Leader Sam Shuttleworth notes how the growth in banking profits mirrors a confident New Zealand economy. Mr Shuttleworth expects to see a continuation of this performance in the coming twelve months on the back of the reported results for 2H13.
“Net interest income showed a modest 2% lift in 2H13 and increased from $3,706 million to $3,791 million. Longer term, we don’t expect to see any great changes in net interest margin as a largely short term interest rate re-pricing book should be enough to stop any major decline, while tight competition in the market should prevent any significant increase,” says Mr Shuttleworth.
“However, the increase in other operating income, including trading income specifically is of particular note. Trading income increased by 46% to $309 million in 2H13, while fee income was down 3% or $30 million to just over $1 billion for the period. There was also a 17% decrease in losses on financial instruments held at fair value in 2H13.
”Bad debt expenses dropped by 13% ($27 million), to $178 million, over the same period which was dramatically below the $1.3 billion peak experienced in 2H09. This is a further indicator of a growing economy and that borrowers are servicing their debt at these historically low interest rates” Mr Shuttleworth adds.
The second half of the 2013 financial year also saw both lending and, to a lesser extent, deposits increase.
“The corporate lending market has recorded its fourth consecutive period of growth with an increase of 2.2% for 2H13, while household lending continues to show growth of between 2% and 3% each half year since the first half of 2012,” Mr Shuttleworth says.
On the back of this growth, this is the first time that there has been a slight net cash outflow with customers since 2009.
“We’ve seen the continuation of mortgage holders beginning to move off floating interest rates to fixed interest rates over the period, with now only 44% on floating interest rates at September 2013, down from 63% in March 2012. Interestingly, this migration has occurred at the short end of fixed interest rates with approximately three quarters of mortgages either at floating or fixed interest rates for less than a year. This position should ensure a competitive mortgage market continues throughout 2014.
“The challenge for New Zealand’s major banks is
to continue this momentum through 2014 and beyond as the
affect of forecasted interest rate hikes, high loan to value
ratio restrictions or ‘speed bumps’ and the continued
need to save takes hold. With increasing demands to harness
innovative technology to meet customers’ expectations, we
are all set for an interesting period of time and change,”
concludes Mr Shuttleworth.