Media release, 24 April 2012
KPMG’s Financial Institutions Performance Survey (FIPS), which analyses the performance of New Zealand's registered banks, has shown 2011 to be a year of strong profits for New Zealand's banks. This is despite the deleveraging trend witnessed in 2010 continuing through 2011 and the impact of the slow pace of Christchurch's city centre rebuild.
John Kensington, KPMG's Head of Financial Services, warned that the deleveraging trend highlighted in last year's FIPS report, showed "no clear sign of abatement” and “could continue into 2013 and beyond”. In part, a reflection of soft business confidence and fears around slowing demand from China and Europe.
"In essence, New Zealanders who have money available but are not yet ready to starting spending and those who don’t are reluctant to borrow. For many, the global financial crisis was a wake-up call and people are now far more concerned about their debt levels and less likely to increase borrowing.
“For New Zealand – a nation with a woeful record for saving – this fiscal 'safe haven' imperative is arguably the only positive outcome from the GFC. As a country we certainly could not continue the borrow-to-the-limit-and-beyond mindset of the past”, he said.
Strong sector profits
Undoubtedly 2011 was a year of strong profits for the banking sector, the highest seen in recent times. Combined net profits after tax increased from $2.774bn in 2010 to $3.306bn in 2011.
The banking sector’s results for 2011 point to an improvement in asset quality with reductions in gross impaired and passed due assets.
"With the banking sector posting significant profits in 2011 it could be argued that we have now come out of the worst of the global financial crisis. Given the soft business confidence it is possible some industry sectors are struggling and, should conditions not improve, a deterioration of asset quality cannot be ruled out in the future", said Kensington.
The slow pace of rebuilding and the resulting shortage of housing have inevitably led to lower levels of new mortgage lending. While it is certain that Christchurch will be rebuilt, there remains uncertainty – much to the frustration of local residents – as to the extent of the rebuild and exactly when and where building work will commence.
“When the building work starts in Christchurch it will attract people from across the country to undertake the work. Their spending will add welcome stimulus to the local economy and the nation as a whole.
“All told, the rebuild of Christchurch is likely to be one of the major factors that will drive increased spending and borrowing over the next 10 to 15 years”, said Kensington.
FIPS 2011 report
This year’s Financial Institutions Performance Survey is the 25th edition of KPMG’s annual analysis of the performance of New Zealand’s registered banks, major finance companies and savings institutions.
Massey University have assisted with the analysis for this year’s survey. Christoph Schumacher, Professor of Innovation and Economics at Massey University says, “Overall, the indicators show a positive picture if you are looking for stability. It is certainly better than the economic outlook in much of Europe and the United States."