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Opinion: NZ's big four banks increased their combined annual profit by NZ$335 mln meaning it's still a good time to haggle with your bank
By Gareth Vaughan
Three hundred and thirty five million dollars is a lot of money to anyone in New Zealand. Be it Glendowie's resident billionaire Graeme Hart, whose global packaging empire has a US$131 million US equity deficit, or the Morgan family who have pocketed hundreds of millions from selling Trade Me and Gareth Morgan Investments.
And it's even a lot of money for our big four banks. It's the amount the four - ANZ, ASB, BNZ and Westpac - have increased their combined annual net profit after tax by, with this combined profit rising 12% to NZ$3.2 billion. This comes at a time when the interest rates on their key product - loans - are at historic lows, and lending growth is in the low single digits.
Then again, we kiwis do have plenty of debt, especially against our homes and farms, so the interest on it keeps ticking over. Based on the Reserve Bank's sector credit data as at the end of September, New Zealanders' NZ$316 billion of debt is equivalent to about 154% of our annual Gross Domestic Product. In a paper released earlier this year the Bank for International Settlements (BIS), the central banks' bank, went as far as suggesting the surge in private debt during the noughties even reduced New Zealand's productivity growth.
The NZ$335 million rise in combined profit from the Australian owned banks comes with three of them - ANZ, ASB and Westpac - having produced record annual profit. The fourth, BNZ, actually recorded a NZ$91 million, or 14%, drop thanks largely to a NZ$353 million plunge in its gains less losses on financial instruments at fair value, with these instruments including the likes of derivatives and swaps.
As big a number as NZ$335 million is, it's less than half NZ$766 million, which is what the big four banks' combined profits grew by last year.
|ANZ||ASB||BNZ||Westpac||2012 total||2011 total|
|Net profit after tax (NPAT)||$1.265 billion||$685 million||$580 million||$707 million||$3.237 billion||$2.902 billion|
|Growth of NPAT year-on-year||17%||21%||down 14%||22%||12%||38%*|
*Year on year growth figure uses Westpac's annual profit figure reported for 2011 rather than restated one.
It's not surprising the profit growth has slowed given last year's was coming off the global financial crisis (GFC) and structured finance transaction dispute settlement induced profit dips. In this new post GFC, or GFC phase two, world, New Zealand's big banks are very profitable by international standards.
Developed world's most profitable
Earlier this year BIS anointed Australia's major banks, parents of New Zealand's big four, as the developed world's most profitable as measured by pre-tax profit as a percentage of total assets. Analysis by interest.co.nz showed the New Zealand subsidiaries were even more profitable than their Aussie parents with the average pre-tax profit as a percentage of total assets across New Zealand's big four 20 basis points higher than their parents at 1.39%.
Following this latest set of results the local banks are still likely to be there, or thereabouts, from a global profitability perspective, and they're also still outperforming their parents. The average net interest margin across the big four Australian banks for their latest financial year was 2.17%, which was 30 basis points shy of their kiwi subsidiaries average of 2.47%.
And in terms of return on average assets, the New Zealand big four come in with a combined average of 1.17% compared with their Aussie parents 0.94%.
|Net interest margin||2.62%||2.16%||2.39%||2.72%|
|Return on total average assets||1.18%||1.1%||1.24%||1.19%|
|Return on equity*||22.3%||19%||14.7%||19.7%|
|Cost to income ratio||42.6%||42.6%||40.6%||41.8%|
*ANZ and Westpac figures from UBS research.
The strong profitability of New Zealand's banking sector doesn't end with the big four. State owned Kiwibank posted record annual profit of NZ$79.1 million in August. And according to KPMG's Financial Institutions Performance Survey for the June quarter, the Co-operative Bank and SBS Bank had the highest net interest margins of all the banks at 2.70% and 2.66%, respectively.
Haggle with 'em
So where does this leave customers?
In a good position to haggle with banks. Despite the developed world leading profitability of the sector, there are plenty of banks chasing your business, especially if it's good business. If you're a borrower you ought to try and bargain down the advertised interest rate, and if you're a saver, you ought to haggle for an increase to the advertised interest rate. If your bank won't budge, talk to other banks. Turn it into a beauty pageant.
After all, shifting banks these days is easier than it has ever been with a simplified process introduced in late 2010 meaning all the customer's supposed to do is fill out a form and leave the banks to do the rest of the work.
As Westpac CEO Peter Clare pointed out this week New Zealanders are more loyal to their banks than Australians. Let's make sure they earn that loyalty.
|Annual deposit growth||7%||7%||11%||11%|
|Annual lending growth*||3%||1%||4%||3%|
*The BNZ figure is gross loans, the others are net loans.
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