Heady days of flowing profits predicted to end for banks

By PAULA OLIVER and NZPA


Banks have completed a boom year for profits, but there are predictions that their flow of riches will be spoiled in the next 12 months.

Low interest rates and a healthy economy increased the already strong Kiwi desire to buy property last year - and in the process pushed banks to record growth in mortgages.

The profits had at least one new kid on the block salivating.

Profits for the big five banks - now four after the ANZ's takeover of the National Bank - neared a total of $2.5 billion over the year.

But it was not only the big banks that achieved strong growth.

In Nelson, where housing demand was among the highest in the country, the local building society was the fastest growing savings institution in the country.

It achieved asset growth of 43 per cent in the year.

A strong economy also meant that banks were able to write off lower levels of bad and doubtful debt.

Good it may sound, but the party for banks is likely to begin to wind down in the year ahead.

Reserve Bank Governor Alan Bollard is expected to raise interest rates early in the year, and that in turn could put the brakes on the housing market and bank profits.

The slowdown is forecast particularly in the Australian housing market, and already two major banks across the Tasman - ANZ and BNZ's parent National Australia Bank - have confirmed expectations of lukewarm earnings growth.

"We are not going to see the heady days of the last few years - we are going to see a much more normal year," said ANZ's Australian chief executive, John McFarlane.

Competition among money lenders became tighter in 2003, as relatively new contenders Kiwibank, Superbank and a plethora of finance companies gave the mainstream banks a run for their money.

It was a landmark year that will be remembered for ANZ's massive $5.68 billion purchase of the highly prized National Bank.

One of the biggest deals in Asia last year, the buyout raised concerns about wholly Australian ownership of our major banks, and whether the deal might send National Bank customers packing.

Many commentators agree that the big story of the coming year will be ANZ - and how it manages the acquisition.

Redundancies are expected in the coming year as ANZ joins parts of the two banks.

Massey University senior lecturer in banking David Tripe said that ANZ had handled the transition well so far.

It had shown an awareness of sensitivities when it put respected National Bank head Sir John Anderson at the helm of the new, larger operation.

Keeping the two brands separate was also a good move.

The ANZ is expected to negotiate the first part of its integration plan with the RBNZ early this year.

The RBNZ is also expected to finally reach agreement with Westpac over its long-running local incorporation issue this year.

Bollard has targeted the middle of the year as a deadline for a deal, and Westpac hopes to achieve a compromise that will save it from paying hundreds of millions of dollars in Australian tax.

Customer satisfaction hogged the headlines last year - and because there is so little between the products banks offer it is expected again to be a decisive factor in the coming year.

Westpac chief executive Ann Sherry, now a year into the job, has tackled her bank's satisfaction problems head-on - working with the Banking Ombudsman's office to reduce complaints, and investing cash and time into improving customer experiences. Other banks are also pushing hard to reach front-runners ASB and the National Bank.

The popularity of internet banking continued to grow - more than one million New Zealanders are now registered to bank on the web.

A recent BankDirect survey found that 65 per cent of New Zealanders had access to the internet, and 45 to 50 per cent of Kiwis were registered for internet banking.

Superbank, New Zealand's first supermarket-based banking medium, got under way in February and chose to take just small steps first.

A joint venture between Australia's St George's Bank and the Foodstuffs supermarket company, it began with a simple savings account and later extended that to a cheque account.

It is hoped to follow the success of similar models in Britain, and its chief operating officer said it had made "neither poor nor spectacular progress, which is not bad given our conservative goals".

Superbank plans eventually to move to offer full service banking with ATMs and possibly a physical kiosk in places.

"We're on step two of a five-step programme and when we've finished that, it'll be time to sing from the rooftops a little more loudly," Munro said.

Tripe backed Superbank's slow start, but said it was unclear yet if it had enough functions to generate positive net revenue.

Kiwibank continued to grow rapidly, requiring a cash injection from NZ Post to make sure it kept up with capital adequacy requirements.

It has now signed up 200,000 customers.

KPMG banking group chairman Andrew Dinsdale said Kiwibank's growth was pretty impressive - "and they've bettered their forecast in terms of their business case".

However, while Kiwibank has the numbers, Tripe questions whether those customers do enough business to be profitable.

"It hasn't necessarily had a huge impact on the market. There are some people who deal with it and find it's been wonderful for them. But you'd expect any newish bank to get feedback from its customers."