Banks weather slump despite profit fall

Photo / Michael Craig

The combined profits for New Zealand's five largest banks appeared to fall sharply during the year to March according to their statutory declarations, but the true level of decline in their core banking operations is difficult to ascertain, says PricewaterhouseCoopers.

In a report on the profitability of the five major banks including Kiwibank released today, PwC said their combined first-half 2009 profits were $1.2 billion, a 22 per cent decline on the same period last year.

"The sustained impact of five quarters of negative economic growth is taking its toll," said PwC financial services partner Sam Shuttleworth.

The fall in profits was primarily a result of a $623 million rise in bad debt expenses over the year, "largely due to the collapse of corporate borrowers plus the provisioning for the current economic cycle". Nevertheless, Shuttleworth said the banks appeared to be weathering the recession "credibly".

However, he pointed out that the data, culled from the banks' quarterly General Disclosure Statements, included significant one-off items which might serve to obfuscate the real change in the level of bank's underlying profits.

For example ANZ National Bank's latest profit figure was hit by a $116 million charge related to the settlement for investors in the frozen ING funds.

Furthermore, during the first half last year, most of the major banks had significant one-off gains resulting from the sale of shares in credit card company Visa.

ANZ National booked an $85 million gain on that transaction.

Shuttleworth said it would be useful for all local banks to present underlying or "cash" earnings figures as they did in Australia to facilitate more accurate comparisons and analysis.

He also said it was "very hard" to get a true picture of banks' net interest margins from their General Disclosure Statements.

That said, his analysis suggested banks were not exaggerating the margin pressure they were reporting.

Elsewhere in the report, PwC noted that bank lending to businesses grew just 2.4 per cent overall in the six months to March and actually contracted 1.3 per cent in the final quarter.