By Gareth Vaughan*
New Zealand's big four banks rank near the top of the pack across a range of profitability measures when compared to their counterparts from both advanced economies and major emerging economies.
For the sixth consecutive year interest.co.nz has crunched numbers for ANZ New Zealand, ASB, BNZ and Westpac NZ, and added NZ to a bank profitability benchmarking table in the Bank for International Settlements' annual report. And once again the NZ banks place towards the top, and ahead of their Australian parents, who are much criticised for their strong profits and who've recently been slugged with a Federal Government bank levy and now slapped with a South Australian state levy too.
The Bank for International Settlements (BIS), the central banks' bank, features banks from 16 countries in its profitability table.
Overall, the numbers crunched for addition to the BIS table show life got slightly harder for NZ's big banks in 2016 versus the previous year. However, from a profitability and financial strength perspective the NZ banks still stack up well against international counterparts.
In terms of 2016 net income as a percentage of total assets, the NZ four combined come in at 1.38%. That's down from 1.53% in 2015 when the Kiwi banks topped those from all countries surveyed by the BIS. At 1.38% for 2016, the NZ banks are third behind only the major banks from the massive economies of Brazil and Russia. Brazil's big three banks come out top at 1.99%, followed by Russia's big three banks at 1.86%.
The top 10 United States banks are next, at 1.36%, followed by China's big four banks at 1.34%. The Aussie parents of NZ's big four are sixth at 1.17%.
Based on net interest income as a percentage of total assets, the next measure in the BIS survey, the NZ banks place fifth at 2.13%. Year-on-year, that's a drop of 11 basis points. The Kiwi banks trail Russia at 4.44%, Brazil at 3.22%, India at 2.56%, and the US at 2.25%. Spain's big six banks place sixth at 2.03%, followed by China at 1.92%, and Australia at 1.73%.
Net interest margins across NZ's major banks are heading lower in 2017. In this year's March quarter the average net interest margin across the big five NZ banks, which is the four Aussie owned banks plus Kiwibank, was 1.98%, down from 2.14% in the March quarter last year.
In terms of fees and commissions as a percentage of total assets, the NZ banks place fifth, when inserted into the BIS table, at 0.96%. Ahead of them are Brazil at 1.86%, the big three Swiss banks at 1.40%, the US at 1.15%, and Russia at 1.04%. Australia's big four banks come in fifteenth at 0.39%.
NZ's high placing in terms of fees and commissions comes after a Treasury report on competition in NZ banking, that interest.co.nz reported on in 2015, noted some bank fees were "concerning," with fees appearing to account for a relatively high portion of bank profits in NZ.
Finally in the BIS table, NZ's big banks rank fourth lowest in terms of loan loss provisions as a percentage of total assets at 0.09%. That's up from 0.08% the previous year. The Swiss banks have the lowest loan loss provisions at an eye boggling 0.01%, followed by Japan's big five banks at 0.06%, and Sweden's big four at 0.07%. The Aussie banks are seventh equal with the big six British banks at 0.15%.
|Profitability of major banks
as a percentage of total assets
|Net income||Net interest
|Net fees and
|Major Advanced Economies|
|United States (10)||1.40||1.36||2.24||2.25||1.24||1.15||0.23||0.28|
|Other Advanced Economies|
|New Zealand (4)||1.53||1.38||2.24||2.13||1.00||0.96||0.08||0.09|
|Sources: SNL; BIS calculations. NZ data added by interest.co.nz|
*With number crunching assistance from Suhaimi Mohamad.
**Number of banks in parentheses.
Here are links to our previous stories based on the annual BIS bank profitability table.
*This article was first published in our email for paying subscribers early on Monday morning. See here for more details and how to subscribe.