Banks post impressive performance

Wednesday, May 7th 2003, 6:48AM

by Jenny Ruth

New Zealand's bank's underlying profitability rose nearly 17% in 2002 while net profit after tax rose an even greater 26%,or $600 million, to a record $2.6 billion, according to the latest annual survey by accounting firm KPMG.

Of the $600 million increase in profits, $200 million reflects one-off gains from asset sales.

Total assets held by New Zealand registered banks rose 4%, or $7.2 billion, to $193.9 billion which was slightly slower to the previous year's 7% growth.

Given weak world growth and the conflict in the Middle East, the banks' performance is impressive, says Andrew Dinsdale, KPMG's banking and finance group chairman.

The aftermath of the rural boom combined with strong tourist, migrant and international student arrivals and low interest rates helped offset the negative global influences, he says.

"The local pressures of a rising New Zealand dollar, drought conditions and less favourable terms of trade make the industry's results all the more impressive," Dinsdale says.

The five major banks dominate the survey, achieving higher growth than the banking sector as a whole.

ASB Bank led the pack with a 17.9% increase in lending assets, more than double the growth of the next fastest growing major bank, National Bank. Mortgage lending accounted for much of the lending growth.

ANZ Bank was the only one of the majors to suffer a fall in lending assets, down 0.6% or $135.7 million.

The downside to ASB's growth was that its interest margin fell just as the major banks combined enjoyed a 10 basis point improvement.

Dinsdale notes Kiwibank "has had a frantic first year of operation," and suggests the industry's returns are what caused the launch of Superbank by Australia-based St George Bank and supermarket cooperative Foodstuffs.

The survey found that the number of branches in New Zealand rose for the first time in its 17-year history, but that was almost entirely due to Kiwibank opening 279 outlets between February and December last year.

With Kiwibank branches reaching 310 by April and Superbank gaining access to the vast majority of New Zealanders though its 474 "branches," this year is sure to show another increase.

Behind the apparent growth in these figures, the established banks actually closed a net seven branches in 2002, less than half the 15 they closed in 2001.

Nevertheless, ANZ Bank has announced a possible branch expansion citing customers' need for "face-to-face" human service. Dinsdale says that in trying to differentiate themselves from their competition, banks are becoming increasingly innovative in the way they use their branches.

"Branches are now changing their opening hours to incorporate evenings and weekends to suit the needs of customers."

Dinsdale also notes that given current low interest rates, second and third tier finance companies continue to aggressively compete for deposits and that the high rates they offer have proven attractive to investors.

"The risks associated with these types of investment have yet to be fully appreciated by the general public," he notes.

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