Industry Developments in New Zealand: Reflecting the Growing Integration of the Economies and Financial Systems of Australia and New Zealand, This Edition of B+FS Our Inaugural Supplement of New Zealand. It Highlights the Key Issues for Financial Institutions in the Year Ahead
Unkles, John, Journal of Banking and Financial Services
Announcing the first New Zealand supplement in B+FS
Our supplement (see pages 28-91) includes articles from many of New Zealand's leading financial institutions and businesses and the extremely positive corporate response we've had to the supplement suggests that this will be the first of many.
We are particularly grateful both to AIBF Board member Sir John Anderson FAIBF, Chief Executive and Director ANZ National Bank Limited, for providing an introduction to the supplement and to Dr Alan Bollard, the Governor of the Reserve Bank of New Zealand for his insightful article on corporate governance.
Setting the scene
In the past five years New Zealand has undergone a period of sustained economic expansion and both its economy and financial markets have been remarkably resilient to turbulence in global markets.
In the year to March, domestic economic activity was boosted by low interest rates, strong inward migration and a surge in the housing market. During this period, robust lending growth by New Zealand's banks and financial institutions generated healthy profit growth and high levels of capitalisation, well above international prudential benchmarks.
Outstanding results in this sector have attracted a number of new entrants to the market and encouraged significant merger and acquisition activity, with the most notable example being the sale of the National Bank by Lloyds TSB Group to the ANZ Bank in December 2003.
Following this sale, all five of New Zealand's largest registered banks are now Australian-owned. These banks hold almost 90 per cent of the sector's assets, and this is the second highest level of foreign bank ownership in the world.
The prospects for growth
The Reserve Bank of New Zealand (RBNZ) increased the Official Cash Rate to 5.75 per cent in early June, the third increase in 2004 and has indicated that further increases are likely. This reflects concerns about the inflationary implications of the still relatively strong housing market, rising export commodity prices, increased global demand and the recent decline in the New Zealand dollar.
In its March Monetary Policy Statement the Bank indicated that it expects growth over the year to March 2005 to be relatively unchanged at around 3.5 per cent, with the external economy replacing domestic activity as the key driver of growth.
Housing market activity should slow as a result of increased interest rates and a continued downturn in net immigration. The RBNZ expects that this will be partly offset by rising export volumes and farm incomes due to the recent softening in the New Zealand dollar and an upturn in commodity prices.
What this implies for financial services While this is good news for economic stability, it is unclear what the impact will be on financial institutions in the year ahead, particularly as mortgage lending comprises around two-thirds of banks' overall lending portfolio.
KPMG's latest survey of the New Zealand banking and finance sector (see summary details on pages 34 to 38) indicates that although economic conditions in New Zealand have provided a very favourable environment for lending growth in the past 12 months, this may not be sustainable through 2004 in view of the volatility of exchange rates and rising interest rates. …