Banks thrived in 2001, outlook mixed

12.00pm

New Zealand banks saw significant rises in lending assets and strong profit results in 2001 but rising interest rates could peg back that growth this year, according to an annual KPMG survey.

The robust consumer confidence boosting mortgage lending growth is also contributing to the Reserve Bank's interest rate rises this year, which could stifle the banks' continued expansion this year.

The Reserve Bank has raised the Official Cash Rate -- which influences other banks' interest rates -- twice this year to 5.25 per cent, and is set to do so again on Wednesday.

Registered banks' combined after-tax profit rose by about 19 per cent in 2001, and their cost to income ratio fell to 48.4 per cent from 54.1 per cent, the said.

"Despite misgivings during 2001, and particularly following September 11, the New Zealand economy has been remarkably robust, making for a conducive environment for loan growth," KPMG said in its 16th Financial Institutions Performance Survey released today.

For the 2001 year WestpacTrust remained New Zealand's largest and most profitable bank, with total assets of $37.9 billion and a record after-tax profit of $465 million for the year ended September.

Little separated WestpacTrust from the second and third largest banks -- Bank of New Zealand and National Bank respectively -- in terms of size.

At December 31, BNZ had total assets of $37.0 billion and reported an after-tax profit of US$440 million, while National Bank's assets totalled $36.3 billion.

Behind were ANZ Bank (assets of $27 billion, after-tax profit of $397 million), and ASB Bank (assets of $22.1 billion, profit up 22 per cent at $183 million).

Banks saw steady if not spectacular home lending growth through most of 2001, with a sharp rise from November onwards as the Auckland property market lifted.

At the same time, increased competition kept pressure on mortgage margins.

Last year's buoyant farm incomes encouraged significant competition for the farming dollar, with new rural-centred players battling with established banks.

Banks' combined loan growth was up 13.2 per cent in 2001, while net interest income rose by 16.7 per cent as the result of stable interest margins and healthy volumes.

Fees and other incomes also rose, by 3.9 per cent, and net after-tax profit was up by 18.9 per cent.

The top five banks held 85 per cent of the total banking assets in New Zealand. Other banks included TSB Bank, Rabobank NZ, AMP Banking and Citibank.

Newcomers included Kiwibank, which obtained its full registered bank status in February 2002, and The Warehouse Financial Services, a venture involving The Warehouse and 51 per cent owned by WestpacTrust launched in September 2001.

Customer satisfaction rose during the year, according to a University of Auckland customer satisfaction survey included in the report.

Business customers noted more significant improvements than residential customers. The trade-off between quality service and bank fees continued to be a key driver affecting customer satisfaction levels.

TSB Bank continued to achieve extremely high customer satisfaction scores. Significantly improving their performance were ASB Bank, National Bank and WestpacTrust; and BNZ and ANZ Bank remained static, resulting in lost ground to the competition.

WestpacTrust and ANZ had the lowest proportion of satisfied and very satisfied customers, according to the survey.

Branch networks continued to shrink, albeit at a slower rate than previous years, while staff numbers grew by 1.4 per cent (318 people) compared with a 3 per cent decline the previous year.

The larger New Zealand banks outperformed their Australian counterparts in six of seven benchmarking categories, including credit quality, efficiency, and growth in net assets.

The number of registered banks remained steady, but there was a boom in the number of finance companies such as Allied Farmers Finance, Bridgecorp Holdings, Nissan Finance NZ and Canon Finance NZ.

- NZPA