Bank profits rebound as bad debts fall; no one’s borrowing

NZ bank profits rebound as bad debts abate, but no one’s borrowing

April 24 (BusinessDesk) – New Zealand bank profits rebounded strongly in 2011, mainly thanks to lower levels of bad debt since both businesses and households showed little appetite for new bank lending in a trend that could continue for some years, says accounting firm KPMG.

In the 25th edition of its annual Financial Institutions Performance Survey, KPMG said the deleveraging trend seen since the global financial crisis began in 2008 showed "no clear sign of abatement” and “could continue into 2013 and beyond”.

"In essence, New Zealanders who have money available but are not yet ready to starting spending and those who don’t are reluctant to borrow,” said John Kensington, KPMG's head of financial services. “For many, the global financial crisis was a wake-up call and people are now far more concerned about their debt levels and less likely to increase borrowing.

“For New Zealand – a nation with a woeful record for saving – this fiscal 'safe haven' imperative is arguably the only positive outcome from the GFC,” he said. “As a country we certainly could not continue the borrow-to-the-limit-and-beyond mindset of the past.”

Combined net profits from the country’s trading banks increased to $3.3 billion in 2011 from $2.8 billion in 2010, but it was too early to argue the worst of the global financial crisis had now passed.

Rather, there had been an improvement in asset quality through 2011, with reductions in gross impaired and passed due assets, the report said.

"Given the soft business confidence it is possible some industry sectors are struggling and, should conditions not improve, a deterioration of asset quality cannot be ruled out in the future," said Kensington.

The slow pace of rebuilding in Christchurch was also holding back lending, but the reconstruction was likely to provide a 10-to-15 year lending stimulus once it got under way.

(BusinessDesk)

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