Competition keeps bank margins low: KPMG

Hot competition in the mortgage markets is keeping pressure on bank margins, according to the latest KPMG financial institutions performance survey.

Wednesday, April 17th 2013, 3:51PM

by Susan Edmunds

The survey noted that the struggle for home loan customers had driven a drop of nine basis points in return on assets across the sector in the December quarter.

It said customers switching to cheaper fixed rates were keeping interest margins flat. The net interest margin for the sector decreased by one basis point, although there was a lot of variation between the institutions.

Co-operative Bank increased its interest margin by 11 points while ANZ and Kiwibank had decreases of 12 and 9 basis points, respectively. Westpac increased its interest rate margin by four basis points. Ian Blair, the general manager of business banking, said competition had been fierce for a while.

Aggressive offers, such as cash offered by ANZ and ASB’s free TV deal led to a higher degree of competition in the market as banks fought to hold on to their market share, as well as acquiring new customers.

Blair did not think it would die down any time soon. He said pressure on housing loan rates also came from deposit rates and banks’ cost of funding.

While funding was getting cheaper, there had been no let-up in pressure on deposit rates because of the increasing level of capital banks were required to hold. He said sharemarket moves such as the Mighty River Power float were not helpful, either. “There’s an increasing level of public floats. All that money has to come from somewhere and we will have to compete aggressively for deposits.”

ASB and Co-Operative Bank had the strongest loan growth in the quarter, followed by Kiwibank.

Kiwibank reported a 6.22% increase in gross loans and advances in the quarter. Spokesman Bruce Thompson said that was in line with expectations. “As a challenger brand, and based off historical performance, Kiwibank has typically forecasted loan growth ahead of overall system or credit growth."

New Zealand banks’ profit lifted by 10.5% as they cut expenses and asset quality improved. Survey participants reported total net profit of $855 million after tax in the quarter.

BNZ reported an increase in net profit after tax of 142% but the top earner for the quarter was ANZ, with net profit after tax of $296 million, down 1.3% on the last quarter, followed by Westpac with $197 million, up 5.9%.

Kiwibank had the biggest increase in expenses compared to income for the quarter. Thompson said that was not a concern. “As a strongly growing organisation we are investing in our systems and people at a rate higher than our more established competitors. A portion of our cost increase is simply from our customer base growing and driving more activity across our distribution channels.

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