New Zealand’s banking sector continues to face challenging times, not only in dealing with the implications of the above, but also the levels of uncertainty regarding the country’s economy in general.
Overview of the quarter
The results of the most recent quarter disclosed continued profitability; however, there appears to be no earnings momentum.
- Interest margins have improved over the past 12 months but are down marginally on the position in September 2010, more significantly the improvements that banks saw in the levels of impaired asset expenses during 2010 have been impacted by the events in Christchurch, the scale of which impacted the early signs of recovery.
- Interest rates remain at a relative low following the reduction in the official cash rate to 2.5% in March.
- In summary, profits are down on the prior quarter with the prospect of further challenges as 2011 continues. The principal areas of focus will include:
- Dealing with the impact of the Christchurch earthquakes and the implications that this will have on the economy and population as the scale of costs and demographic implications become clearer.
- The continued deleveraging in the economy as a whole(reduced loans, increased deposits.
- Dealing with the impending regulatory change on the horizon, including the Open Bank Resolution Policy (consultation paper issued in March 2011).