Banks fit to face challenges

KPMG’s Financial Institutions Performance Survey (FIPS) report for the quarter to 30 June 2012 confirms that New Zealand banks are well placed to meet ongoing challenges.

Those challenges to the banking sector, and the wider New Zealand economy, include the continuing European debt crisis and a slowdown in the Australian economy, our largest trading partner.

“We need strong banks to support our economic growth. You just need to look at parts of Europe to see the devastating alternative,” says New Zealand Bankers’ Association chief executive Kirk Hope.

“The banking sector’s core funding ratio is at 84.3%, well above the Reserve Bank’s current minimum ratio of 70%. That means banks are sourcing more funds from domestic savings and longer term wholesale funds, and are less reliant on shorter term overseas funding.

“On top of this, our banks are set to meet the Reserve Bank’s new minimum level of capital they must hold, which is based on the Basel III international standards.”

The quarterly report revealed that banks’ average interest rate margin decreased by six basis points to 2.25%. “This shows an intense level of competition among our banks,” says Hope.

Banks’ net profit for the quarter was up compared to the March quarter, which recorded lower returns due to movement in the fair value of their investments and derivatives.

“Profits are part of the story, and so is the huge direct economic contribution banks make. Last year banks contributed around $6 billion to our economy through the $4.5 billion they invest in running their businesses here, and the $1.3 billion they paid in tax,” says Hope.