FIPS March 2014 quarterly analysis

FIPS March 2014 quarterly analysis

ANZ Bank performance stands out

[FIPS – Financial Institutions Performance Survey]

Embargoed until 6.00am Thursday 10 July 2014

Yet again this quarter has seen an increase in the Bank sector profits and while many commentators might ask when this is going to stop, the quarter’s results have some significant impacts within it when we drill down.

John Kensington, KPMG Head of Financial Services, explains “The increase in the net profit result is largely driven by New Zealand’s largest bank ANZ as four of the other five banks actually had a decrease in net profit after tax. The ANZ result is a stand out result.”

Overall bank profitability has remained quite stable in the current quarter, with total net profit for all survey participants over the March 2014 quarter of $1,150 million, a $5.7 million (0.50%) increase over the prior quarter which appears quite modest. ANZ Banks performance however shows a 17% increase in profit over the previous quarter.

When we compare the trend over the last six or twelve months, we get a real sense of how strongly bank results have bounced back since the GFC. Looking at net profit for the last six months we see a 15% growth over the previous six months, but if we compare the profit for the last year (four quarters ended 31 March) we see a 22% increase in the sector.

What the variability of profit across the major players in the sector shows is that some of the impacts of a highly competitive banking sector are now starting to impact the banks. John Kensington says “There is enormous competition for good credits and good lending.”

The LVR guidelines are starting to have an impact but most importantly as consumers switch from floating to fixed loans, there will be an impact on the Banks’ margins. This quarter has seen a slight reduction in the Banks’ margins.

The most closely watched indicator has been the Reserve Bank and their movement of the OCR increasing 25 basis points on 24th April and a further 25 basis points on the 12th June. John Kensington says “There is no doubt that the rising interest rates and the LVR impact combined with the switch from floating to fixed loans will further challenge the Banks’ profitability going forward.”

The regulatory horizon still looks very busy and somewhat cluttered and remains an area of concern within the industry.

One particularly pleasing indicator in the quarterly review is that on 22nd May, Standard & Poor’s raised Heartland Bank’s long term issue credit rating from BBB- to BBB, and then on the 27th June, raised the credit outlook of TSB Bank from negative to stable. Also on 30 June Fitch Ratings has assigned a Long-Term Issuer Default Rating of A- to TSB Bank, with a stable outlook. This shows a strengthening on the bank balance sheets and is a tangible reversal on the slightly gloomy comments made by the ratings agencies around the New Zealand economy in the previous quarter.

FIPS Quarterly

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