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New lending plummets at banks

Banks are struggling to put more loans on their balance sheets as businesses and households continue to save and repay debt, says KPMG.

The accounting firm’s survey of how the country’s registered banks and finance companies performed last year, reveals new lending has plummeted.

Agricultural lending growth has dropped from annual growth of about 7% to 2%; housing growth has dropped from about 4.1% to 3.1% and business lending growth – although starting to improve – remains negative.

The KPMG Financial Institutions Performance Survey of 2010, out today, reveals that on the whole, bank lending growth is just above zero while non-bank lending growth remains negative.

Kiwibank enjoyed the most significant lending growth, although this was achieved by sacrificing an element of net interest margin.

KPMG acting head of financial services John Kensington said banks were surprised at the scale of deleveraging – occurring at almost every level of the loan book.

“As a result, all of the banks struggled to write new business and meet volume and dollar targets,” he said.

“Uncertain economic conditions, the softness of the recovery and deleveraging means banks will continue to work hard to grow their loan book in the near term.”

Mr Kensington said although early signs of recovery were seen last year, the significant de-leveraging in all sectors of the economy, combined with events in the second half of 2010 had thrown the strength and speed of the recovery into doubt.

The biggest uncertainty on the path to recovery for the banking sector was the as-yet unquantifiable impact of the Christchurch earthquake, he said.

“All of the banks will suffer some losses, although these have yet to be determined,” he said.

ANZ opens its books for its half-year result today and Westpac will report its interim result tomorrow.

The survey also reveals borrowing from international money markets has fallen 1% as a result of new Reserve Bank requirements for banks to secure more funds locally.

Of the big five banks, ASB has the largest volume of offshore funds at 46%, while Kiwibank has the least with 5%.

More by Georgina Bond

Comments and questions

How does Kiwibank have so little offshore? Is it borrowing from the government, since the the government recently borrowed so much from off shore that it will not need for several months?

The man in the street likes Kiwibank and doesn't like the Aussie banks - hence retail deposits

The reason companies and individuals aren't borrowing is because the banks have been agressive and not commercial even to their best clients over the past 2-3 years. Basically everyone is scared of them, and their client service has been abysmal. Why would you go and borrow from them, knowing that if things get tight they simply put the heat on and hide behind the "the credit department have made this decision sorry" If the sun is shining they will get out the free umbrellers, then when the rain comes they will whip them away. The safest route is don't borrow from them then they can't change the rules on you over night.

coudn't agree more, having experienced this first hand from the National Bank.

Bud Fox you are right on to it.
The Credit Dept makes their decision based on the information the Branch Manager submits to them. Years ago the Banks' did not need a retail credit dept because the Branch manager was a seasoned operator and understood the customers needs. Today the so-called Bank manager is simply a post box and the leader of the "sales" team. Mind you the credit dept is not much better those faceless people read off a prepared script not an understanding of the individual borrowers circumstances and abilities to service their debt requirements.

The banks are 'fair weather' friends only - when you really need them they are nowhere to be seen and when you don't need them they are all over you like a rash. Hypocrites.

Couldn't agree with the earlier sentiments more.

Some of those poor Dairy farmers who they were falling over themselves to lend money to for years then suddenly three years ago they demanded the money back.

For instance I will bet Alan Crafar was 'Mr Crafar' right up until July-August 2008. Soon afterwards no doubt he was addresses as 'hey you' (or some other name like Mr !) Not excusing him but I remember a report into a financial disaster a few years back where the writer stated 'there may well have been an unwise borrower but there was most certainly an unwise lender'

Ditto for a hell of a lot of property developers(admittedly not often financed by the banks)

Ditto! "Fair Weather Friends".
I have heard several stories of folks having an earnings blip, and the bank seizes & sells the house at less than half the mortgage value, when the owner had had a new deal arranged to sell on a new mortgage at full value. What dumb people bankers can be!!
However I expect it has something to do with RB ratios & liquidity.

I think it must be time to watch Money As Debt II again.

Dear Mr Bank CEO

Read the above comments. Believe it or be very very afraid!

Bankers now rate below 2nd hand car sales and Real Estate people on the integrity ladder!
I heard recently that National Bank people grovel to Land Agents for business!!

Dead right! A friend of mine was told that the ANZ Nat bank would lend 65% on his long held retail fully leased commercial property. The bank was given a genuine registered valuation. The property was seriously cash flow positive, and in a prime position on freehold land. After sitting on the application for weeks they said their "rules" only allowed them to lend 65% of 90% of the valuation (why?) and the rent was discounted by 20% (why?) and the rent had to cover the outgoings 1.5 times ( why ?) (It happened to be 1.4 times times). All this while the same bank sat on a large family trust deposit with the same client who - (wait for it) had been with the same bank for 20 years and whose overdraft was never more than $15K and was in the black 25 days of each month. Go figure.

When my farming husband was killed 13 years ago, a particular bank demanded I pay a big chunk off our overdraft within 6 weeks. I still have accounts with them, but not a mortgage ! Now they crawl !!!

Ohhh, I forgot to mention, it was ANZ

All comments are 100% correct, please watch "Money as Debt" and encourage all your friends and family to as well. All banks are largely bad news, however banking with Kiwibank or TSB ensures that, at the very least, NZ retains control over its money supply.

Why should we show pity on banks; especially overseas owned, when their business isnt growing? They have managed to strangle the geese that layed the golden eye.

This was largely driven by short term incentives/bonuses. & lets not forget the banks are still making huge profits, when most other businesses are making losses.

Work it out for yourself. Bank locally, as they have a vested interest locally and cant afford to take customers for a short term ride; unlike these overseas parasites.

Fascinating article, and I would totally agree with comments made so far - in the past, I've had shockingly bad service. My new manager is much better - possibly because she's in her late 20s and doesn't have the "fat cat" bank manager attitude of old. It's great to finally have excellent service.

ironic that the ad at the bottom of this stream is for ANZ doing business in China - perhaps they should move there