A stronger Banking Sector fuels economic growth

Media Release – 25th February 2015

FIPS 2014 analysis

A stronger Banking Sector fuels economic growth

John Kensington – KPMG Head of Financial Services

Strictly embargoed until 6.00am Wednesday 25th February 2015

2014 was characterised by positive economic growth underpinned by the need to have a strong and robust banking sector providing the funds to fuel that growth. Growth momentum continued in the Banking Sector with 2014 profits reaching an all-time record high of $4,838 million, up 20.41% from the previous year.

Competition between the major banks remains intense, especially in residential mortgage lending. John Kensington, Head of Financial Services, notes “Competition for good credits, particularly in the under 80% LVR home mortgage market has been cutthroat with banks’ lending below carded rates and offering such incentives as cash, iPad’s, TV's, and even the payment of break fees.”

Key figures for the sector;

• Profits reach a record high of $4,838 million, up 20.41% from the previous year

• Housing sector lending around 53% of business

• Total assets increase by 5.28%

• Net profits after tax up 20.41%

The banks have continued to benefit from the favourable cost of funds, down to 3.64% in 2013 and up only marginally to 3.67% in the current period. New Zealand banks have seen a substantial growth in retail deposits, allowing the banks to compete less aggressively for deposits. This has meant that deposit interest rates have been driven down.

Clouds on the horizon for the Banking Sector include the state of the global economy, the continued high NZ Dollar, and low global commodity prices. John Kensington remarks, “The slashing in forecasts for the farm gate milk pay-out, plus areas of the country already declared in drought, suggests a fall in the asset quality of the dairy sector could impact the banks as dairy loans represent 67% of total rural lending.”

Looking to the future, advanced data analytic tools have the ability to sort, analyse and identify patterns in the huge volumes of data produced by the industry.

Kensington notes, “There is little doubt that data, and how it is used will become the next battlefield as banks look to pre-empt the impact of potential disruptors and avoid disintermediation in the industry.”

Banks are awakening to the reality that value can be added to existing customer relationships, in fraud detection, and to improving the general customer experience, from the data generated by the Banking Sector.

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