New Zealand’s banks continue to perform
New Zealand’s five major banks have continued to show good growth in the first half of their 2015 financial years (1H15).
According to PwC’s New Zealand Banking Perspectives publication released today, the country’s five major banks reported core earnings of $3,480 million in the first half of their 2015 financial years (1H15), up from $3,281 million for the previous six months (2H14). This was driven by increases in net interest income (up by $184 million) and a reduction in operating expenses (down by $49 million), while other operating income decreased by $34 million. Following an increase in bad debt expenses (up by $54 million), profit before tax was up 5% or $145 million to $3,299 million (2H14: $3,154 million) and profit after tax was up 4% or $92 million to $2,372 million.
PwC Partner and Banking Sector Leader Sam Shuttleworth notes it has been another strong performance by our major banks off the back of good lending growth to both the household and non-household sectors. Corporate lending has continued to grow, up 4.1 per cent between 1H15 and 2H14, the highest since the late 2000s.
“The lift in lending over the last year has generated the lift in net interest income growth and the demand for credit over this twelve month period has been very strong when compared to recent times. The reduction in operating expenses has also aided the lift in profitability for the period.
“However, this was more a story of higher costs in 2H14 due to one-off non-cash items, but interestingly, the banks’ operating expenses for the first half of their 2015 financial years was up against the comparable period twelve months ago,” says Mr Shuttleworth.
“Looking forward, it will be a question of whether this performance can be sustained. The strong economic conditions experienced over the last two years are predicted to slow in the short to medium term, but nevertheless are comparably positive on a global scale. This combined with a hot property market in Auckland and difficult trading conditions for our rural community and those who service it – we are about to embark on an interesting journey.”
Despite these challenges, these banks have seen an increase in their average total capital ratio which has increased from 12.4 per cent in 2H14 to 12.6 per cent in 1H15. The banks continue to be well capitalised and comfortably ahead of regulatory requirements.
The ongoing technology race in the financial services industry isn’t ending anytime soon, Mr Shuttleworth says, but rather it’s a new normal for the banks that can facilitate new customers and better customer service – but also lowers entry barriers for competitors.
“If harnessed correctly, it will drive better customer experiences and outcomes. This evolving technological world has already resulted in the explosion of FinTech entities in various regions around the globe. Should a global bank want to enter our local market, it is possible without the need to invest in bricks and mortar.
“Like any sector, technology can be seen as disruptor, but also the key to unlock future value,” concludes Mr Shuttleworth.