A PWC report released this morning on New Zealand's five
major banks will bring cold comfort to those opponents of the
profits being taken across the Tasman by the Australian-owned
The banks in the report include the New Zealand
Government-owned Kiwibank, along with the Australian-owned
ANZ, ASB, BNZ and Westpac.
According to the PwC New Zealand Banking Perspectives, the
banks' combined before-tax profits in the second six months
of their 2012 financial years were $2.17 billion, down from
the $2.44 billion reported in the first six months of their
The $261 million fall in operating profit was driven by a
reduction in other operating income (down $156 million),
increasing operating expenses (up $102 million), while net
interest income and bad debt expenses both stayed flat.
PwC banking sector leader Sam Shuttleworth said that when
examining the collective annual results, operating profits
for the 2012 financial years were up 6%, or $253 million,
when compared with the previous corresponding period.
''The five major banks' income is down and costs are up as
increasing regulatory pressures and strong competition in the
lending market drive down earnings and mask what is pleasing
Borrowing rates were dropping as homeowners and businesses
aggressively renegotiated interest rates, even in the middle
of fixed rate periods, he said.
In that competitive environment, the banks were ''playing
ball'' as they focused on the longer game of increasing the
value of their lending books by locking more customers into
fixed-rate mortgages and an easing of pricing to corporate
customers, Mr Shuttleworth said.
A $5.2 billion increase in the value of the lending books in
the second half could not be interpreted as a bad result for
the banks. It was a great indicator of improved confidence
and stability in the economy.
''In fact, it's the first time the corporate sector has
recorded two consecutive periods of lending growth since
As the banks competed to attract borrowers in a low growth
market, they needed to resist the temptation of reducing
their interest margins too far if the New Zealand banking
system wanted to retain its global reputation as a safe
banking environment, Mr Shuttleworth said.
With the Reserve Bank responding to the global regulatory
environment, banks had faced additional regulatory-driven
changes. What set the current environment apart was the
''sheer volume'' of significant new regulation being
introduced. The regulations required banks to address the way
they did business and it commanded a large part of their
Meeting the cost of increased regulation is one of the
drivers forcing up operating expenses 16% since the first
half of 2010.
''Ultimately, this cost is borne by the banks' borrowers and
shareholders though higher interest rates and a reduction in
dividend yields to shareholders,'' he said.
The five banks
• Largest growth in their lending books since 2009
• Before tax profits fell 11% in second half of 2012
• Competitive household and corporate lending markets
• Bad debt expense flattens