NEWS -- New Zealand banking sector remains resilient in a competitive market

NEWS -- NZ banking resilient in a competitive market

Despite some softening in interest margins and uncertainties in the global economy, New Zealand’s banking sector continues to deliver strong results.

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Partner - Audit, Head of Banking & Finance

KPMG in New Zealand

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Despite some softening in interest margins and uncertainties in the global economy, New Zealand’s banking sector continues to deliver strong results.

John Kensington, KPMG’s Head of Financial Service, says that the strong results are on the back of growing loan books, fuelled by the Auckland property market and increased farm debt.

According to KPMG’s latest Financial Institutions Performance Survey (FIPS) quarterly analysis to December 2015, the banking sector saw a reduction of profitability, from $1,266 million in the September 2015 quarter to $1,107 million in the December 2015 quarter.

“This decrease in profits is underpinned by a decrease in non-interest income and lower interest margins,” says Kensington.

The reduction in non-interest income for this quarter is largely attributed to a decline in trading income and unfavourable fair value movements of financial instruments. Interest margins also remain tight in a highly competitive environment, which has led to a further 4 bps weakening in interest margins - down to 2.21% in this quarter.

The latest FIPS Quarterly also reported that total bank assets reached yet another record high in the December quarter, increasing from $440.97 billion in September 2015 to $443.01 billion in December 2015, and continue to grow at a steady pace. This growth was instrumental in maintaining the banking sector result.

The global share markets experienced their worst start to a year on record in 2016; with stock sell-offs amidst global growth concerns and falling oil prices. However, the major indices recovered to varying degrees and by the end of March 2016 the US indices returned to broadly the same levels as before.

John Kensington says that while the global economic outlooks remains uncertain, “the local economy remains buoyant,” delivering growth at circa 2-3% for the past five years.

However, the outlook for the dairy sector continues to be gloomy caused by low global dairy prices driven by developments in the wider global dairy market.

In other notable activity for the sector, in April this year NZ Post announced its intention to sell a 45% share in Kiwibank to NZ Super Fund (25%) and the ACC (20%), for a total of $495 million. The latest OCR cut of 25 basis points (bps) by the RBNZ was reported to have surprised 80% of the market, and led to a circa 20 bps drop in one and two-year swap rates in one day.

Download the full report and a list of key findings from FIPS Quarterly: December 2015

FIPS Quarterly: December 2015

FIPS Quarterly: December 2015

New Zealand banking sector remains resilient in a competitive market.

© 2017 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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