New Zealand Banking Industry Overview: KPMG's Latest Survey of the New Zealand Banking and Finance Sector Highlights Significantly Growth in Lending Assets, a Flurry of Acquisition and Consolidation Activity and Impressive Underlying Performances Overall
Dinsdale, Andrew, Journal of Banking and Financial Services
Economic conditions in New Zealand have provided a very favourable environment for lending growth in the past 12 months. However, this may not be sustainable through 2004 in view of the volatility of exchange rates and rising interest rates.
The focal point of the year was the completion of the biggest transaction in New Zealand corporate history--the sale of The National Bank by owners Lloyds TSB Group plc to ANZ Bank on 1 December 2003. The transaction means that ownership of all five major banks operating in New Zealand is now held in Australia.
The year also saw the gradual exit of AMP Bank from the New Zealand market resulting in the sale of various components of the loan book to HSBC, GE Commercial Finance NZ, Rabobank New Zealand and Strategic Finance.
The registered bank sector experienced outstanding growth in lending assets during 2003 as the property market was buoyed by a domestic economy growing at a brisk clip, low interest rates and strong population growth.
Once again the finance company sector has experienced spectacular asset growth and impressive results, which have attracted new participants. One such example is the launch in September last year of Orange Finance Limited by investment advisors, Money Managers Limited. The higher deposit rates offered within the finance company sector continue to draw investors in a period of record low interest rates. The demand for personal debt to finance the acquisition of white and brown goods and motor vehicles and for debt consolidation products also continues to increase and is fuelling growth in this sector. Refer to Figure 1.
Strong asset and earnings growth
The first half of 2003 saw strong net migration and low interest rates which resulted in a buoyant housing market and construction sector. Retail trade also fared well and demand for imports was brisk. The second half of 2003 saw interest rates drop to near 20-year lows with the Official Cash Rate (OCR) sitting at 5 per cent for the six months up until January 2004. Annual inflation at 1.5 per cent remained well within the Reserve Bank of New Zealand's mid point range of 1 per cent to 3 per cent.
Offsetting these positive indicators, in the latter half of 2003 the New Zealand dollar breached the US dollar 70 cent level. It is widely acknowledged that the appreciation of the New Zealand dollar relative to the US dollar is greater than the economic fundamentals would imply. Since July 2002, the New Zealand dollar has risen 69 per cent against the US dollar, 12 per cent against the Euro, 46 per cent compared with the Japanese yen, 11 per cent against the Australian dollar and 25 per cent compared with the Sterling. While the New Zealand dollar has recently fallen to around US dollar 63 cents, giving some relief for exporters, most analysts expect the currency to gain in value again.
Since some of our most important industries are export driven, the value of the New Zealand dollar has a major impact throughout the economy that flows on to employees, customers, suppliers and their families. On the other hand, the appreciation has had a positive impact for importers and related industries.
Mortgage loan growth
Mortgage growth was again spectacular in 2003, with lending by the registered bank sector alone increasing by over $9.7 billion or nearly 13.3 per cent. The vast majority of lending undertaken by the savings institutions sector is also in the mortgage market and this sector grew by 17.1 per cent. At 18.7 per cent, the growth in loans and advances made by the finance company sector was outstanding, but obviously included a significant portion of commercial and unsecured lending rather than just mortgages.
While some of the growth in mortgage lending is the result of escalating house prices, there was also a significant increase in new loans being written. Statistics from the Real Estate Institute of New Zealand indicate that median house prices nationwide increased by 18. …