Survey finds NZ banks well placed for challenges ahead

The New Zealand Bankers’ Association today welcomed KPMG’s annual Financial Institutions Performance Survey (FIPS). In its 25th year, the 2011 survey shows New Zealand has a strong, stable and highly competitive banking sector that continues to serve New Zealand businesses and consumers very well in a globally uncertain environment.

“Our banks are well placed to face the coming challenges, which include higher cost of funds, increased regulatory costs, and continued low credit growth,” said New Zealand Bankers’ Association chief executive Kirk Hope.

Increases in bank profits for 2011 were largely driven by a reduction in bad and doubtful debts, a modest increase in margins for the full year, and a strong focus on cost management. While provisioning has reduced year on year from $812.7 million in 2010, to $548.5 million in 2011, business challenges, such as cost of funds, low credit growth and competition, may see pressure on margins in the coming year.

The regulatory burden is also increasing; for example, achieving compliance with the Reserve Bank’s prudential requirements including accelerated timeframes for new capital standards, Open Bank Resolution, and meeting new United States tax obligations. “Changes to the regulatory landscape have the potential to increase the costs for customers in 2012 and beyond. Any increased costs must be justified by the benefits of regulatory change,” said Hope.

“Let’s not forget the contribution banks make to our economy. The banking industry spent $4.46 billion in New Zealand in 2011. This includes payments to New Zealand businesses that provide goods and services to banks, contributions to community and voluntary programmes, and financial literacy initiatives. It also includes salaries paid to over 25,000 people who are employed by banks in New Zealand,” said Hope.