New Zealand Banking Industry Overview: The New Zealand Banking and Finance Industry Has Continued to Achieve Significant Growth in Lending Assets and Strong Profit Performance, According to KPMG's Analysis. (Survey Report)
Dinsdale, Andrew, Journal of Banking and Financial Services
Despite adverse external conditions--weak world growth and conflict in the Middle East--the NZ economy has remained relatively stable, resulting in a positive environment for loan growth.
The local pressures of a rising NZ dollar, drought conditions and less favourable terms of trade make the results of the industry all the more impressive but also raises the question of sustainability.
Once again the financial results achieved by the industry have attracted new entrants in both the registered bank and finance company sectors. The launch of Superbank by St George Bank and Foodstuffs sees the NZ market follow certain international trends. Superbank aims to offer supermarket value banking and become a major force in the NZ banking arena.
The 2002 year has also seen several new start-ups in the finance sector including Numeria Finance, Capital and Merchant Finance and Geneva Finance. A collection of tier two and tier three finance companies continue to aggressively compete for deposits and provide funds to non-conventional markets.
The NZ Government-initiated Kiwibank has had a frantic first year of operation. By December 2002 the bank had already signed up 100,000 customers, and had reported a better than forecast net loss of $10.2 million for the first five months trading to 30 June 2002. A net loss after tax of $6.5 million was reported for the six months to 31 December 2002.
The other key development in the NZ banking and finance industry during 2002 has been the progressive exit of AMP Bank. After selling its credit card portfolio to American Express in December 2002, AMP Bank recently announced the sale of its residential mortgages and property finance loan assets to HSBC and GE Finance, respectively.
Strong asset and earnings growth
The NZ economy has remained relatively stable over the last year when benchmarked against our major trading partners. The economy grew at an annualised rate of approximately 5 per cent during the first half of 2002, but has since slowed to between 2 per cent and 3 per cent.
While business and consumer confidence rose and fell throughout the year, the follow on of the rural boom, strong tourist, migrant and international student arrivals and low interest rates have provided stability despite mixed global economic conditions.
Further pressure on the economy has come as a result of falling commodity prices and payouts to the dairy industry and recent drought conditions, offset by strong performance in other aspects of the rural sector (such as horticulture).
In addition, the Auckland economy has reaped the benefits of strong net inwards migration with a flow-on impact on the residential housing market.
The individual drivers behind asset and earnings growth in each customer segment can be summarised as follows:
Mortgage loan growth
Mortgage growth was significant during 2002, increasing by nearly $5 billion. Growth was particularly strong in the Auckland region where the property market was impacted by inwards migration. The Auckland central city apartment market continued to flourish, along with demand for more traditional housing.
The lead up to the America's Cup in early 2003 also meant that inner city occupancy rates were high. House sales have continued to rise year on year. Mortgage activity was also increased by the lively presence of some relatively new intermediaries--particularly the large Australian mortgage originators (e.g. Wizard). In addition, mortgage brokers continue to write increasing levels of new business. Refer to figure one.
[FIGURE 1 OMITTED]
Growth in non-prime lending
The last year has seen continued growth in the new second tier market for non-conforming mortgages. Led by entities including Liberty Financial Services, Provincial Finance and Cairns Lockie Limited (and its subsidiary General Finance) the period has seen the launch of a number of "no financials" home loan and "fresh start" style products. …