Statistics New Zealand (Stats NZ) has confirmed to interest.co.nz that banks' foreign funding costs were not included in yesterday's 'finance index' component of the Producer Price Index (PPI), which had prompted this report in the Dominion Post that banks' profit margins had jumped nearly 15% in the March quarter from December. Yesterday, in the outputs index for the PPI, the 'finance index' showed a 14.6% rise in the March quarter from December. Stats NZ describes the finance index as being "dominated by 'financial intermediation services indirectly measured' (FISIM), which is a notional measure of the margins that financial intermediaries make on their borrowing and lending operations." The close to 15% rise in the index caused a stir, prompting calls that banks' profit margins had soared over the quarter at the fastest rate since records began in the 1990's. However, a Stats NZ spokesman told interest.co.nz that the measure of the index used the rates on banks' New Zealand dollar operations, and not foreign funding rates. Foreign funding makes up about a third of New Zealand banks' funding or over NZ$100 billion. The cost of New Zealand banks' foreign funding has been rising over the past couple of years, and rose significantly as the credit crisis intensified in the second half of 2008. The spokesman said "it is a limited measure," when asked if today's reports showed a balanced view of what the finance index represented.
The spokesman said Stats NZ had received calls and questions from a couple of the banks to clarify how they measured the index, following the media reports. Stats NZ said they calculated the index from information that was publicly available via the Reserve Bank's website, from its C10 table for the banks' NZ dollar operations, and C4 table for banks' NZ dollar and foreign currency funding and claims. Interest rates on foreign currency funding are not readily available, the spokesman said. "We want to be very clear on what we are measuring," the spokesman said.