Developments in the New Zealand Banking Industry

Article excerpt

This article reviews developments in the New Zealand banking industry over the year ended December 2002. It discusses some of the structural developments in the banking system, policy initiatives in the banking supervision area, and the financial condition of registered banks. Given the importance of the Australian banking system to New Zealand, the article also includes a discussion of the Australian banking system, with particular focus on the major Australian banks. The information available on the New Zealand and Australian banking systems suggests that both systems continue to perform strongly. For an assessment of the non-bank financial sector in New Zealand, the reader is referred to the companion article in this Bulletin: "Financial intermediation beyond the banks: recent developments".

1 Introduction

This article discusses recent developments in the New Zealand banking industry, commenting on the financial performance of New Zealand registered banks using data drawn from banks' disclosure statements and highlighting several important developments in the Reserve Bank's banking supervision policy. Given the close links between the Australian and New Zealand economies in general, and the banking systems in particular, the recent performance of the major Australian banks is also described.

2 Structural issues

The registered banks continue to be the major players in the New Zealand financial system. As at 31 December 2002, there were 17 banks registered in New Zealand. These banks held total assets of $204.5 billion. The non-bank financial sector is much smaller. Although this sector has grown rapidly in recent times, the total assets of non-bank financial institutions were only around $13 billion in 2002 (1).

During 2002 one bank, AMP Bank, announced plans to withdraw from the New Zealand banking market. The bank has subsequently announced the sale of its retail banking business to HSBC, commercial property loans to GE Commercial Finance and rural loans to Rabobank. However, AMP Bank remains a registered bank for the time being.

Since December, one further bank has been registered. St George Bank New Zealand Limited was registered on 3 February 2003. The bank is a subsidiary of St George Bank Limited, the fifth largest bank in Australia. The New Zealand subsidiary has commenced operating a joint venture with the Foodstuffs Co-operative using the name "Superbank".

The entry of St George Bank and the potential exit of AMP Bank will not alter two of the notable features of the New Zealand banking system: the domination by a small number of relatively large banks and the extent of foreign ownership. The five largest banks in New Zealand together accounted for 85 per cent of total banking assets as at 31 December 2002. All five of these banks are also owned by foreign banks. Four of the five are owned by Australian banks and, in most cases, the New Zealand operations have very close links to their parents. Of the other registered banks, all but two are foreign owned.

For several years, banks have been encouraging their customers to undertake their banking by telephone or by using the Internet rather than by visiting bank branches. As a result, until recently, the total number of bank branches had been steadily declining. However, in 2002 the number of branches increased significantly (see figure 1). Most of this increase is attributable to Kiwibank, which had established about 280 branches by the end of the year. ASB Bank and TSB Bank also opened new branches, while the ANZ Banking Group has signalled that it too may add to its branch network.

[FIGURE 1 OMITTED]

The movement towards there being more physical points of presence for banks will gather further momentum when Superbank commences offering banking facilities at supermarkets. While the Superbank model is a new one for New Zealand, there are examples of banks and supermarkets joining forces in Australia and the United Kingdom. …