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%.