Competition is heating up between the New Zealand banking sector versus other financial lenders – partly due to the new mortgage lending restrictions.
KPMG New Zealand’s latest Financial Institutions Performance Survey-Non Banks full year review reports that although there has been some asset growth in the non-bank sector, margin pressure is continuing and competition with banks remains a major challenge for finance companies.
John Kensington, KPMG Head of Financial Services, says the new loan-to-value (LVR) regulations offer both opportunities and risks to the non-bank sector.
“Non-bank lenders are not subject to the LVR restrictions on home lending, so the opportunity exists to write business in a part of the sector without competing with banks and this comes at a time when consumer confidence is rising.”
To combat this, however, there is the ever present threat of the banking sector the banking sector moving into new product areas that compete directly with non-banks.
“One view is that with banks being limited by the amount they can lend in the high LVR mortgage area, they may try to bolster their lending books in other areas primarily serviced by the non-bank sector,” says John Kensington.
“Another view is that they may leave the mortgage for strictly home lending – and not encourage borrowers to use headroom for other assets. The full impact of the LVR rules remains to be seen…but we expect some trends to emerge by the time we issue our bank Survey in March 2014.”
Already we have heard in the news from market participants who are directly affected( land agents, banks, builders ) that there has been a slow down and last week the RBNZ relaxed the rules around new home builds.
Overall, the latest Survey reported that New Zealand finance companies and savings institutions have emerged fairly well from the Global Finance Crisis (GFC).
“The 23 institutions we surveyed have been successful in adapting their business to the post-crisis environment,” says John Kensington.
“With the struggles of the GFC behind them, the focus has shifted to managing margins and growth in light of a competitive lending environment that is at last starting to show some new opportunities.”
Another key finding of the Survey was the challenge of increased regulation in the sector. The Anti-Money Laundering and Countering Financing of Terrorism Act came into full effect on 30 June 2013.
“The cost of compliance with the Anti-Money Laundering legislation was a common theme among the executives we interviewed,” says John Kensington.
“They were incurring significant costs around hiring specialist advice, updating their information systems, and training staff in new customer ID requirements. While participants acknowledged the importance of the legislation, it does not provide any opportunity to generate additional business or profit.”
KPMG publishes the annual Financial Institutions Performance Survey in two parts. This latest survey (Part 1) focuses on non-bank financial institutions; and Part 2, to be published in March 2014, will focus on registered banks.
Read the full FIPS Non-Banks December 2013
For more information, contact:Brett Cammell
– External Communications Manager, New Zealand
Phone: 09 367 5977 or 021 335 740