Finance firms moving into banks' territory

By KEVIN TAYLOR

Growing numbers of finance companies are muscling on to bankers' turf, says a new survey.

KPMG's annual survey of financial institutions, out yesterday, outlined the health of New Zealand's banking and finance industry.

Despite misgivings during the year, particularly after the September terrorist attacks on the US, the domestic economy had been remarkably robust and conducive to loan growth.

The survey said the industry's performance and the positive domestic economic outlook had attracted newcomers.

KPMG banking and finance group chairman Andrew Dinsdale said the continued growth in profitability of major banks and a flight of funds to finance and contributory mortgage companies in search of higher interest rates were all features of last year.

The major banks had outperformed expectations during the year, he said, with improvements in key drivers of profitability. The big five - ANZ, BNZ, National, WestpacTrust and ASB - made a total of $2 billion in net profit, up 18 per cent from $1.7 billion in 2000.

Dinsdale said the most satisfying result for the registered banks was a better underlying performance, a measure of operating income less operating expenses.

The underlying performance rose from $2.6 billion to $3.1 billion, up 18 per cent.

"This is the measure the banking sector regards as the most significant measure of performance," he said.

Total assets held by registered banks rose almost 7 per cent, compared with 17 per cent in 2000.

The survey also highlighted the rise of finance companies.

Thirty finance companies made last year's survey, up from 24 the year before. The latest list includes nine new entrants.

Total assets of the finance companies grew by $1.5 billion on the 2000 figure to $8.9 billion - a 20 per cent rise.

Growth rates for loans, advances and total assets were maintained last year in the finance company sector. Total lending grew by 16.1 per cent, compared with 15.5 per cent in 2000.

The survey said growth and increased lending offered further confirmation of a robust economy as activity rebounded and the rural sector, in particular, flourished.

Two emerging figures in finance - Pyne Gould Corporation and Hanover Group - were identified by KPMG.

But UDC Finance continued to hold the top position as the country's largest finance company in terms of total assets and profitability.

AGC Finance NZ - about to be sold to GE Capital in a transtasman deal expected to reap AGC owner Westpac a $902 million (A$750 million) profit - was second.

The survey said new entrants had dominated the finance company rankings in terms of increases in total assets and increases in net profit.

KPMG said that for banks to differentiate themselves from the competition and improve customer service, more innovative use of bank branches was needed.

"Branches are now changing their opening hours to incorporate evenings and weekends to suit the needs of their customer."

The survey said the traditional bank branch had changed little throughout the 20th century, but it was unlikely to be the model of the future.

Banks no longer saw their branch network in isolation from other distribution channels.