Despite cheaper funding and reduced expenses, the average bank net interest margin fell in the December quarter, KPMG says

Despite cheaper funding and reduced expenses, the average bank net interest margin fell in the December quarter, KPMG says

By Gareth Vaughan

 Average bank funding costs fell to a five-year low in the December quarter of 3.80%, KPMG says in its Financial Institutions Performance Survey for the three months to December 31, 2012.

"Some of the intense competition for deposits has eased over recent quarters, and we see that over the entire sector the cost of funds reduced by six basis points over the quarter to 3.80%, the lowest cost of funds we have seen in the last five years," said KPMG.

"This reflects less competition in the term deposit market, but also the overall improvement in global market conditions which has made raising funds offshore easier and cheaper."

KPMG says the 3.80% rate is basically the average interest rate a bank would be paying for all its funding. In the June 2008 quarter this measure was 8.04%, but a year later it had dropped to 4.53%.

However, despite the drop in funding costs, the average net interest margin for the banks surveyed - ANZ, BNZ, Commonwealth Bank of Australia's New Zealand operations including ASB, Kiwibank, SBS, the Co-operative Bank, SBS and Westpac - fell by 1 basis point to 2.26% quarter-on-quarter. The biggest increase, of 11 basis points, was recorded by the Co-operative Bank, which also recorded the highest net interest margin at 2.86%. ANZ recorded the biggest decline, dropping 12 basis points to 2.31%.

 "Net interest income increased due to volume as gross loans and advances increased 0.99% for the quarter but net interest margin was one basis point lower for the December quarter at 2.26% reflecting a strong quarter of asset growth," said KPMG.

In terms of quarterly percentage gross loan growth, CBA/ASB led the way with 2.25%, followed by the Co-operative Bank with 2.06%. For the 2012 calendar year, the Co-operative Bank grew gross loans by 6.45%, Kiwibank by 6.22%, BNZ by 5.55%, CBA/ASB by 4.89%, TSB by 3.64%, ANZ by 3.44%, and Westpac by 2.60%. SBS' gross loans shrank by 7.44% over the year, or by almost NZ$200 million.


Westpac, meanwhile, was the only one of the big four to see its operating expenses to operating income ratio increase in the December quarter, with the average ratio across the eight major retail banks down 4.4% from the previous quarter.

KPMG said the average operating expenses to operating income ratio across the banks surveyed fell to 46.36% in the three months to December 31, from 50.79% in the September quarter. Five banks recorded decreases and three recorded increases.

The largest decrease came from BNZ, which fell to 49.64% from 73.43%. The biggest increase came from Kiwibank, up to 66.37% from 63.16%. Westpac's ratio rose to 43.41% from 40.48%. KPMG noted a drop in operating expenses showed banks' efforts to control costs, and in some cases the completion of IT projects started in the previous year.

"The movement in the BNZ ratio is heavily impacted by fair value movements on financial instruments, which can be volatile quarter on quarter," KPMG said.

ANZ's ratio fell to 46.99% from 53.37%, and CBA-ASB's to 39.40% from 40.00%.

 Net profit after tax across the banks surveyed rose 11% to NZ$855 million, again versus the September quarter. KPMG said the increase was mainly driven by an increase in non-interest income, with this boosted by gains in fair value movements, and to a degree, a reversal of movements in the previous quarter. Total assets rose NZ$3.1 billion, or 0.84%, with six banks growing gross loans.

However, KPMG said banks' return on assets continues to be under pressure with "intense" competition for mortgages. A drop of nine basis points in the average return on assets saw this come in at an average of 5.66% across the eight banks. Factors behind the fall included competition in the hot Auckland mortgage market, net migration, and Christchurch rebuilding. 

"There is a continuing trend, indicated by data from the Reserve Bank that shows mortgage customers are continuing to switch from floating to fixed (interest rates). This is of no surprise, as banks are offering lower fixed two-year and one-year rates than the floating, and customers are jumping on to these, sensing the time is finally right to move to fixed," said KPMG.

The chart below shows impaired asset expense versus average gross loans and advances at the bigger banks.

 *Both the table and chart above are taken from the KPMG report.

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Comment Filter

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"it is the Reserve Bank's job, as the banks' supervisor, to provide the close scrutiny; it's depositors' job to earn the money entrusted to the bank."
Brian Fallow is correct in his judgement...English et al are not...
This OBR farce, theft policy I call it, has pushed savers to stay short term...which might explain this thread..of course the parasites can get cheap money...the more critical and dangerous the world financial farce becomes, the more is placed in short term accounts..
It is to the shame of this govt and useless RBNZ leadership that both are failing to take control...that together they prefer to do what the parasites say shall be done.
The short term deposits will evaporate fast at the first sign of trouble and this will make any waves of trouble that much worse .....but the stupid in the Beehive fail to see this.

Don't worry Wally they are going to be Ok, and whats with all the posting in the middle of the night, the wife frosty?
The latest KPMG Financial Institutions Performance Survey shows net profits for the December quarter at the country's main retail banks were $855 million, up 10.5 per cent on the previous quarter.
The bigger profits over last quarter were largely driven by an increase in things such as transaction and monthly account fees, up by 18.5 per cent, and lower operating costs, the survey said.
The top-earning bank for the quarter was ANZ, with a profit of $296m - a decrease of 1.3 per cent from the last quarter. Westpac followed on $197m, which was up on the $186m it recorded the previous quarter.
KPMG head of financial services John Kensington said the results were proof of a strong banking sector.

"Strong banking sector"...he got that bit right AJ....strong enuff to push Key et al any which way they want.
Early to rise makes a bloke wealthy and wise...I think.
I would like to see an accurate chart showing the trends in deposits to be sure that savers are heading short....where is it?
Why is there no thinking we know of, going into the downside of having this 'deposit theft policy'.....has it been part of the plan to flog the SOE shares at a fatter price....make deposits unsafe?
Look what the FED has done to Gold...along with their mates in the big criminal banks!
Next on the block....Bonds?

Hell Wally, BNZ loan to deposit ratio is %162 , who needs deposits?
 Greg Pytel again
On closer examination there is a remarkable difference. With every cycle of the 86.5% loan-deposit ratio every £1 deposited is reduced becoming less than £0.50 after 5 cycles and less than 1 penny after 32. With a loan-deposit ratio of 137% — lending £137 for every £100 — not to mention 174% or indeed 322%, the story is drastically the opposite. Imagine a banker gets the first £1 deposit in the first week of a new year and lends it out. Imagine that twice every week in that year the amount lent out comes back to him as a deposit and he sustains such deposit creation process with a ratio of 137% twice every week for the year. This is a perfectly plausible scenario on the current electronic financial markets. By the following New Year’s Eve, the final amount he finally lends out from the original £1 is over £165 trillion (165 with 12 zeros, or over 16 times the amount governments have so far injected into economy). The total amount lent out in a year by a banker is over £447 trillion. Significantly with a loan-deposit ratio 100% or above no reserve is created.

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