Banks need to lift their game: report

Record results posted by leading banks such as BNZ and ASB have been helped by declining bad debts. Photo / NZME.

Banks will need to "reinvent themselves" if they want to keep increasing shareholder returns, according to a new report.

In its Global Banking Outlook for 2015, international financial services firm EY says banks face an array of stakeholder pressures and transformation in the sector is crucial.

"They must find a way to deliver improved performance for investors who have tired of high volatility but low returns on equity," the report said. "In doing so, banks will have to grapple with a low-growth environment across much of the developed world and slowing growth in the emerging world."

New Zealand's big four Australian-owned banks - Westpac, ANZ, ASB and BNZ - have been posting record bottom-line results and reported a more than 10 per cent increase in combined profits to $4.1 billion last year.

However, much of that increase has come on the back of declining bad debts, amid improving economic conditions, and analysts have said New Zealand lenders may struggle to keep up their ballooning rates of profit growth as loan impairment levels return to normal.

Massey University banking expert David Tripe said local banks would struggle to achieve the balance sheet growth required to lift profitability.

"Banks increase their profits by increasing the size of their business and the margins generally tend to shrink through time," he said.

The EY report said a globalising marketplace, digital business, demographic shifts and a changing workforce were the four "mega-trends" influencing the banking industry.

Banks were facing a new era of competition, with new financial services providers such as peer-to-peer lenders - which match up borrowers with lenders online - entering the market.

The report said there would be opportunities for banks to increase revenue and customers through entering into partnerships with these new players.

NZX-listed Heartland New Zealand recently bought a 10 per cent stake in Harmoney, New Zealand's first peer-to-peer platform.