By Gareth Vaughan
The country's biggest five banks are still sitting on 90-day past due assets valued at about four times what they were before the Global Financial Crisis (GFC) and will need asset prices to rise and wage inflation to significantly reduce them and avoid crystalising major losses, PricewaterhouseCoopers (PwC) says.
PwC's latest bi-annual Banking Perspectives report entitled Banks return to normal, but not as we know it covers the financial results of ANZ, ASB, BNZ, Kiwibank and Westpac for the second-half of their 2010 financial years.
The report notes that although the five banks' combined 90-day past due assets are down slightly from the NZ$1.4 billion high in the first-half of 2009, they were still at NZ$1.3 billion in the second half of 2010. This compares to pre-GFC norms of between NZ$300 million and NZ$400 million. Loan provisions held by the banks dropped by just NZ$80 million to NZ$2.95 billion in the period covered by PwC's report.
PwC's comments on the banks' past due assets follows a KPMG report on finance companies released in December that pointed out the finance company sector had a "legacy of problem loans" that were proving difficult to dispose of or recover.
PwC partner Sam Shuttleworth told interest.co.nz in a video interview that past due and impaired asset growth among the banks had slowed "right down" in the last six months.
"What that means is hopefully we’ve seen the worst of the asset quality issues coming through," Shuttleworth said. "I caveat that with who knows what the economic environment going forward will bring. So the question now is how long will it take the banks to work themselves out of this position?"
He said residential mortgage holders who were more than 90 days behind in making their payments would take "a bit of time" to catch up because their income wasn't likely to grow very quickly.
"In respect of the impaired assets for corporate New Zealand, you’re in for the long haul with a bank," said Shuttleworth.
"Because pre-GFC the exit strategy for a bank could’ve been ‘please seek refinancing elsewhere.’ That is not an option for these type of assets (now) so this could be a trend that will take a while to work the way out of the (banks') books. That said, the provisioning levels should be appropriate based on the information to date, so it will take a further deterioration to see provisioning levels increase."
However, for the banks to significantly reduce their past due loan balances and avoid crystalising big losses, on the residential mortgage front, house price growth or wage inflation was required.
"But it will be a while to work their way through."
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