Banks prepare for hard times

Banks face a tougher year as demand for credit slows and tough competition in the mortgage market bites, investment bank Credit Suisse First Boston says.

CSFB also warns the demise of so-called structured finance transactions, that give banks big tax benefits, and costs stemming from new Reserve Bank regulations, will hurt.

The National Australia Bank-owned BNZ stands to be the worst hit.

Its loss of market share in recent years, lost profits from its recent cut-price "unbeatable" mortgage campaign and costs linked to Reserve Bank demands for computer systems to be located in New Zealand are to blame.

CSFB says ASB should be relatively well insulated, largely because of its recent strong lending growth.

It says ASB's potential liability to the structured finance transactions is only 3-4 per cent of its post-tax profits.

The Government is closing the legal loophole allowing these deals, which take advantage of laws giving favourable tax treatment for money channelled to a foreign borrower via New Zealand.

BNZ is exiting three transactions, potentially crimping earnings by $35 million. ANZ National Bank could see a $45 million cut on earnings, while Westpac's exposure is "high".

CSFB also says the merger of the ANZ National Bank seems to be proceeding well, thanks to its low-profile strategy of maintaining two separate retail brands.

CSFB says ANZ National Bank is considering opening ANZ and National Bank branches as it strives to defend its 40 per cent market share.

ANZ National also still proposes a partial stock exchange listing.

This could be "a 25 per cent listing some time after the integration is past 12 months' completion", CSFB says, adding any listing will not be before 2006.

CSFB says Westpac will continue seeking Reserve Bank approval to transfer account-processing from Auckland to Sydney.

The analysts say Westpac's turning around of the BT Financial Group in New Zealand is running a year behind Australia.