New Zealand's big five banks have weathered turbulence caused by the global financial crisis, booking a combined $1.3 billion in first-half profits, a report by PricewaterhouseCoopers reveals.The Banking Perspectives report, released today, analysed the f
New Zealand’s big five banks have weathered turbulence caused by the global financial crisis, booking a combined $1.3 billion in first-half profits, a report by PricewaterhouseCoopers reveals.
The Banking Perspectives report, released today, analysed the financial performance of the country’s five major banks: Kiwibank and Australian-owned ANZ National, ASB, BNZ and Westpac, revealing banking profits were respectable, if unspectacular and still below pre GFC levels.
The $1.3 billion profit for the six months to June virtually mirrored the combined $1.4 billion loss for the preceding six months when balance sheets were hit by December tax settlements with Inland Revenue.
But compared to the same time last year, profits only rose $39 million or 3%, with pre-tax earnings falling $287 million or 15%.
PricewaterhouseCoopers financial services partner Sam Shuttleworth said the figures painted a picture of the major banks starting down the road to recovery as core earnings had strengthened, reported bad debt charges had eased and cash holdings had increased.
But potential increases in funding costs and the possibility of further bad debts could all cause the journey to take longer than expected, he said.
While competition for retail deposits remained fiercely competitive, Mr Shuttleworth said it was clear at least some of the banks had been able to pass these costs on to their customers through increases to their reported net interest margins.
“Looking forward, we would not expect the pressure on funding costs to diminish given the banks’ needs to prudently manage their liquidity and regulatory requirements.
“As a result, upward pricing pressure on lending will remain as the higher funding costs are passed on and the recently low net interest margins return to historical levels before the credit boom.”
The corporate sector had driven the drop in bad debt expenses, reduced to $798 million – a fall of $498 million from the previous six months.
“It is not evident the deterioration in household sector loans has halted yet but unless the global and domestic economies perform adversely against expectations, we have probably experienced the worst of the corporate sector write-offs in New Zealand,” said Mr Shuttleworth.
Bank lending remained static, rising only $0.1 billion to $277 billion.
And while banks appeared to be back in the business to lend, Mr Shuttleworth said he could not see a major reversal of this trend on the horizon, given the upward re-pricing for risk that had occurred – particularly in the corporate sector.
“The latter is likely to be putting many companies off increasing their current bank borrowings to fund discretionary opportunities given bank funding had become relatively more expensive than before.”
While the banks had focused on term wholesale funding, that funding was vulnerable to external influences such as developments in the northern hemisphere.
“The focus on alternative funding mechanisms should remain a priority,” he said.
