Our big 4 banks appear to be the developed world's most profitable, based on their pre-tax profit

Our big 4 banks appear to be the developed world's most profitable, based on their pre-tax profit

By Gareth Vaughan

New Zealand's big four banks still appear to be the developed world's most profitable, based on number crunching by interest.co.nz and an international bank profitability comparison done by the Bank for International Settlements (BIS).

Figures released by BIS, the central banks' bank, show Australia's big four banks - ANZ Banking Group, Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corporation - to be the most profitable in the developed world. As a percentage of total assets, pre-tax profit across the four comes in at 1.18% for 2012.  Second in the developed world is Canada at 1.07%.

"In Australia, Canada and Sweden, banks consolidated the gains made in previous years," BIS says.

Interest.co.nz calculations show pre-tax profit as a percentage of total assets across New Zealand's big four - ANZ, ASB, BNZ and Westpac - came in at 1.29% for the year to March 31, 2013, which whilst not a direct apples-for apples time comparison, incorporates their latest available figures.

The 1.29% is, however, down from 1.39% when we did the same calculation last year, when New Zealand's major banks also placed first.

Meanwhile, BIS has added Brazil, China, India and Russia to its chart (featured at the bottom of this story) this year and removed Austria and the Netherlands.  The inclusion of Brazil, China, India and Russia, where government-controlled banks are major players, pushes Australia down to fifth, or sixth when New Zealand's included, with Russia's major banks coming in first with pre-tax profit as a percentage of total assets of 2.39%. BIS says the Russian banks' profitability has improved mainly because of a sharp drop in loan loss provisions.

In terms of net interest margins, at 2.25%, the New Zealand banks also come in one place ahead of their Aussie parents' 1.82%. However, among developed countries Spain is higher at 2.36%, and Brazil tops overall at 4.42%. Last year the New Zealand banks recorded 2.37% versus their parents' 1.83%.

The most recent interim financial results reported by the big four show, combined, they recorded a $99 million, or 6%, rise in cash earnings to $1.804 billion. ASB and Westpac both recorded 7% rises, ANZ a 14% increase, and BNZ a rise of about 0.5%. Last year the four posted a combined $392 million, or almost 30%, rise in interim cash earnings.

BIS also includes figures for loan loss provisions and operating costs. For loan loss provisions, the New Zealand banks come out at 0.14%, low but behind Swiss banks' staggeringly low 0.01%, and fifth lowest overall ahead of the Australian banks' 0.21%.

In terms of operating costs as a percentage of total assets, the New Zealand big four come in sixth at 1.20%, slightly higher than their Aussie parents' 1.19%.

BIS last year put the Aussie banks' 2011 pre-tax profit as a percentage of total assets at 1.19%, which was up from 1.14% in 2010, and ahead of second placed Canada's 1.08%. In 2009 the Aussie banks were second most profitable at 0.93% behind Spain's 0.98%. They were also second, at 1.01% , in 2008, behind Spain's 1.07%.

Profitability of major banks1

As a percentage of total assets

1 Values for multi-year periods are simple averages. Cross-country comparisons may be limited by differences in accounting standards.
2 In parentheses, number of banks included in 2012.
3 Includes personnel and other operating costs.
4 Excludes personnel costs; 2012 figures for one of the banks are estimated on the basis of half-year results.
5 Data start in 2007.
6 Data start in 2002.

Sources: Bankscope; BIS calculations, with NZ figures from interest.co.nz.

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15 Comments

In terms of net interest margins, at 2.25%, the New Zealand banks also come in one place ahead of their Aussie parents' 1.82%. However, among developed countries Spain is higher at 2.36%, and Brazil tops overall at 4.42%. Last year the New Zealand banks recorded 2.37% versus their parents' 1.83%.
 
Isn't it time the RBNZ took it's foot off the emergency OCR rate level pedal? - anecdotal evidence suggests growth is soaring in the most important export sector. Read more

It's been an absolute bonanza for local bond traders - the 15/04/23, 5.50% NZ government stock, 10 year bench mark issue, has been on a tear in the last 24 hours -  the yield fell from 4.25% yesterday to 4.145% today.  Cheap finance (@ 2.75%?) for the chosen few to borrow the Crown's NZD 5.328 billion cash surplus parked at the RBNZ have a grand opportunity to finance liquid sovereign position with good positive carry characteristics.
 
Central banks need to be ordered to cease and desist from the doomed experiment of trying to help out society to pick winners - there are those amongst us who are just that much better qualified and they are not public servants, inevitably captured by the less capable elements of the grasping.

The peasants who saved cash in a bank deposit are being rorted by a cartel...and the govt just loves it....and the RBNZ has encouraged it....don't it make you feel good to be a Kiwi saver....!

Kimy - lets not waste each others time again. The discussion was about NZ banks margins on its mortgage lending

Kimy - lets not waste each others time again. The discussion was about NZ banks margins on its mortgage lending. Maybe you prefer US depo rates of 0.25% and floating mortgages rates of 3.30%  - do the math.

Kimy, I think if we look at NZ banks net interest margin over time we'll see that they have been falling - generally over many years.  Would be good for Gareth to confirm.
 
Assuming that's the case, then this means that the NZ banking market is competitive as margins have been competed lower.  Mortgage rate pricing feeds into that calculation which therefore suggests that banks are not exactly pricing for a record profit as you suggested in another post.  Record profits come from many other dynamics that play out - but the trend in net interest margins would suggest that interest rate pricing is not the driver.

If it wasn't for Kiwibank and other NZ owned banks/ financial institutions then I'm not sure there would be a "competitive" market. 
 

The only problem with that argument Dobrydan is that the competition between the Aussie banks is also just as extreme in markets that the sole NZ banks do not compete in - farming, corporate, larger business etc - add Rabo to that list in farming. Banks don't look at the nationality of their competitors, they're out to get their market share whoever they're up against.

The RBNZ tracks net interest margins here - http://www.rbnz.govt.nz/statistics/tables/g4/
It started tracking them in Sep 1996. For registered banks they peaked at 2.84% in Dec 1997, and for retail registered banks at 3.11% in the same month.
They've fluctuated a bit over recent years but are currently at similar levels to where they were in 2006. The last figures show 2.25% for registered banks in December 2012, and 2.28% for retail registered banks.

So.........this tells us that NZders are infact the world biggests banking suckers! 
They love debt, they love bank slavery, they love being played like mugs..........
Well, never would of guessed that! And come the day the ponzi scheme falls over (when the NZD losses all credibility) watch em all yell and scream 'victim'! much like those suckers who fell for those greedy unrealistic loaded with risk interest rates at Hanover and other finance companies have. 

Why do kiwis put up with banks pulling such a high margin compared with the margin they make in Oz? Just goes to prove banks had no justification for recent rate increases!

What are the reliant on Kimy ?

Do we need any more evidence that the big banks operating in this economy are farming the whole place....with a gutless govt and toady RBNZ playing the bit parts in this farce!
We are all listening to the 'credit music' because that is what this economy has sunk to...
 

Grant A needs to work it out.  Most profitable in the world.  Why?  Pricing power.  As a result of government support for monopoly.
Now Grant might work around the edge of banking.  And be told to be competitive.  And the troops try their best to be so.  But the big picture setup is one where the principals of monopoly control apply.
Banks, petrol, electricity.  The list goes on.

Wolly the Govt aren't gutless they know exactly what they are doing. We have a Banker freind as prime minister we have a cabinate minister now a banker cross pollination everywhere. Govt have this don't touch policy on the banks and it is costing Kiwi's dearly.