Banks increase loans by 8.3pc

By Richard Braddell

WELLINGTON - New Zealand's banking sector weathered the Asian crisis and a sluggish local economy in remarkably good shape, boosting lending 8.3 per cent to $106.5 billion in 1998, the annual KPMG banking survey reports.

The survey shows that the banks' aggregate underlying profit performance was up $300 million to $1.98 billion, although the gain was not reflected in the bottom line, which rose a modest 1.9 per cent.

The aggregate bottom line was trimmed by a $120 million abnormal restructuring charge due to National Bank's absorption of Countrywide and by higher bad debt provisioning rates. The BNZ and ANZ have now joined WestpacTrust in adopting dynamic provisioning, a procedure which recognises a new loans statistical share of portfolio losses at the time the loan is written.

The chairman of KPMG's banking group, Andrew Dinsdale, said the banks had been labouring under the tightest interest rate margins in the 13 years of the survey, but had maintained profitability due to continuing cost controls and healthy foreign exchange and fixed interest trading gains.

While this year's considerably more stable financial environment was likely put a brake on trading profits, Mr Dinsdale anticipated a strong performance, helped by the absence of major restructuring costs and stable interest rates which would arrest the interest margin decline.

Among the majors, WestpacTrust stood out as top bank with its net $341 million profit ousting BNZ which dropped to $288 million from $355 million in 1997.

WestpacTrust was also unusual in that it was able to boost its interest margin, from 3.16 to 3.41 per cent, resulting in an $81 million lift in net interest income.

Since integrating Trust Bank, WestpacTrust has become a leading financial markets player and has restructured its corporate banking activities to strengthen its presence in that segment.

KPMG attributed the gain in WestpacTrust's interest income to treasury trading.

ASB, the fifth-largest bank, was ranked third behind BNZ on KPMG's overall ranking.

The survey also highlighted the strong growth of mortgage brokers, once regarded as peripheral, but whose increasing importance as a distribution channel has implications for banks which still operate from large bricks and mortar networks.

Originating 7 per cent of loans in 1996, mortgage brokers are now responsible for 17 per cent and look poised to expand rapidly, although they still have a long way to go to match levels of 30 per cent in Australia and 50 per cent in the United States.