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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6 Comments
MIA- Definately agree there.
TA is the most bias... We might see his regular housing market newsletter disappear (again) while more and more bad housing data come through. In his last one he tried to draw a trend in days to sell data (from 3 months worth), showing that they were improving and that meant housing was turning around. Well that trends been well and truely busted with Jan figures of over 50 days to sell, close to the worse we have seen.
He has 'revised' his predictions many times, e.g house prices increasing after 2010 budget, he had to back pedal on that as prices declined from then on. I was also pretty shocked reading some of his newsletters how immature he comes across for someone representing a bank. Have no respect or time for him and will not even consider dealing with his bank at anytime in the future.
Banks sell mortgages, there is ever reason for them to be as shonky in there advice regarding housing as real estate agents themselves
At the very least the Bank Economists provide some ripping entertainment with their crap!
One of the best was Brendon O'Donovan's (Westpac) pick at the start of the year that the NZ economy would have a "Rip snorter" of a year!
ANZ are the only bunch who are half way decent (at least in NZ. they came out with some shockingly biased stuff in Aus, if you follow the Unconventional Economist website at all)
the nz property market / economy needs a 20%-30% fall in value and a similar drop in Aussie to regain any sort of credibility - and fast or these stubborn past due loans won't go away any time soon. The longer things teeter at these inflated levels the more likely we are to see a slow and protracted decent into stagflation and/or depression. The decent at present is being controlled and manipulated from the RBNZ and Aussie. And is the result of a poorly managed economy from Labour from terms 2 and 3.
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