Developments in the New Zealand Banking Industry during 2003

Article excerpt

This article reviews developments in the New Zealand banking industry over the year ended 31 December 2003. It describes structural changes in the industry, comments on current issues in the area of banking supervision in New Zealand, and examines trends in payment methods and distribution channels. The article analyses banking system data from 2003, looking at aggregate financial position, financial performance and risk indicators. The data indicate that the banking system continues to display considerable stability, with good profitability and asset quality. Some comments on developments in the non-bank financial sector and the Australian banking sector are also included. Concluding remarks are made about areas of potential vulnerability for the New Zealand banking system.

This is the final article on the state of the banking system to appear in the Bulletin for the foreseeable future. Commencing later this year, the Reserve Bank plans to publish a regular report, probably six monthly, on the New Zealand financial system. That publication will include analysis of the state of the banking system and related issues. The Bulletin will continue to include articles discussing specific policy developments in the financial system.

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1 Introduction

This article is a continuation of the annual series of articles that review developments in the New Zealand banking industry. The article begins by describing changes in the structure of the industry during 2003 and then comments on other current issues that are relevant to banking supervision in New Zealand. In 2003, this included amendments to the Reserve Bank of New Zealand Act 1989 and a number of policy developments of a regulatory nature. Trends in payment distribution channels (eg bank branches, ATMs) and in payment systems (eg EFTPOS, cheques) are described, drawing on data provided by the New Zealand Bankers' Association. The article also analyses aggregate data for the New Zealand banking system for 2003, drawn from the quarterly disclosure statements that all registered banks are required to publish. It looks at trends in aggregate financial position and performance and risk indicators in respect of registered banks in New Zealand.

2 Structural issues in the banking sector

As at the time this article was prepared, there were 18 registered banks in New Zealand. The number of banks increased by one in 2003 with the registration of St George Bank New Zealand Limited During March 2004 there occurred the simultaneous voluntary de-registration of the New Zealand branch of Bank of Tokyo-Mitsubishi (Australia) Limited (an Australian subsidiary of Bank of Tokyo-Mitsubishi) and the registration of Bank of Tokyo-Mitsubishi, which now operates directly as a branch in New Zealand A list of registered banks as at the time of publication of this article is shown in the Appendix.

A significant change to the structure of the banking industry during 2003 was the acquisition by ANZ Banking Group (New Zealand) Limited of The National Bank of New Zealand Limited on 1 December 2003. Both banks have, to date, continued to be separately registered as banks in New Zealand (although National Bank has given notice that it wishes to be removed from the register of banks on 26 June 2004). This acquisition created the largest banking group in New Zealand, which as at 31 December 2003 held 34 per cent of the total assets of the New Zealand banking system. The next largest bank was Westpac with 20 per cent of total system assets. Bank of New Zealand had 18 per cent of system assets and CBA banking group had 15 per cent.

Another effect of the merger was to increase the concentration of Australian ownership of the banks operating in the New Zealand banking system. As at 31 December 2003, Australian owned banks held 87 per cent of total banking system assets.

The merger required the approval of both the Commerce Commission (which considered market dominance issues) and the Reserve Bank (which considered financial stability issues). …