Big three banks pick slower next half year in weakening economy

Friday 18th May 2001

By Peter V O'Brien

The three Australian banks that have most of New Zealand's banking business expect economic conditions in their home country to show slower growth in the next six months.

Australia & New Zealand Banking Group (ANZ) said the weaker economy could make it difficult to repeat the earnings gain of the six months ended March 31 in the second half.

National Australia Bank (NAB) managing director Frank Cicutto said he expected the economic environment and trading conditions to be softer in the second half but the group was on track to achieve the targets set last year of earnings per share growth of more than 10% and economic value-added growth of more than 5%.

NAB's earnings a share in the six months ended March 31 were 125.3Ac compared with 99.3Ac in the corresponding period of the previous year, an increase of 26.2%, so the group is well on target to achieve its goal.

Westpac Banking Corporation's interim report said the Australian economy had performed generally well over the past year, but more recently had shown signs of slower growth.

The bank expected credit conditions to deteriorate a little in the near term but the low- interest environment would be positive for business activity.

The economic slowdown was expected to reduce Westpac's rate of growth from that achieved in the first half.

Australian banks' statistics for the six months ended March are in the table. Figures for share prices indicated investors are confident about the banks' capacity to improve profitability in future.

While ANZ and Westpac's prices at the end of last week were below their highs for the year, the former was only 3Ac under the high for 2000 and the latter was 36Ac, or 2.7%, less than last year's.

The cost/income ratio figures in the table are a measure of a bank's efficiency. A reduction in the percentage indicates efficiency has improved and a rise shows a decrease in efficiency.

NAB set itself a target some time ago to get its ratio below 50% and reached it for the first time in the latest reporting period.

Results for the full year ended September will determine whether the trend can be maintained, given the forecast of slower economic growth, although the bank has roughly half its assets outside Australia.

The interim report said offshore earnings from continuing operations contributed 41% of net profit.

Mr Cicutto added the intriguing comment that overseas earnings "represented export income for Australia of almost $A800 million."

The drive for efficiency in banks here and in Australia has led to branch closures and increased installation of automatic teller machines (ATMs).

A recent KPMG survey of financial institutions showed the number of bank branches in New Zealand fell from about 1500 seven years ago to about 800 last year.

The number of ATMs has steadily increased, as has the range of services available from them.

Bank branch closures have slowed down recently, but resentment among some people, particularly those in smaller communities, will take a while to fade when coupled with the continuing debate over trading bank fees.

The latter was a driver in the move of Deputy Prime Minister Jim Anderton's push for the proposed "People's Bank," which should be in business soon under the aegis of New Zealand Post and with an injection of about $80 million capital, which is coming from "the people" in the form of government input.

Improved efficiency could also occur with the growth of internet banking services, as the customer base using the facilities increases, although it is currently expensive for the banks, given the relatively low number of users.

Westpac's report said it was a leading internet bank in the region with more than 788,000 internet banking customers in Australia and New Zealand.

That number was about 10% of the bank's customer base. The report said online "originations" had increased, with 12% of credit cards, 9% of personal loans, 3% of savings accounts and 2% of transaction accounts now being originated through the internet.

The effect of electronic banking can be seen in the move to have different fees for electronic and paper transactions.

There will still be people who will want, or need, personal services from banks, so the vision of no bank branches and a vast network of machines doing the business is unlikely to become reality, although electronics will increase as a machine-literate population grows.

It may seem strange to those educated in the computer age that ATMs can bewilder some individuals, particularly the elderly, as can be seen on occasions as a queue forms behind someone struggling to follow the machine's instructions and choices and hit the correct buttons.

Australian-based banks have enjoyed good share price growth in recent years after having difficult times in the late 1980s and early 1990s.

They are big organisations in the context of Australasia, while still smaller than the international giants, and can be guaranteed to compete heavily in New Zealand with the People's Bank if the latter threatens their business.

Australian banks' statistics six months ended 31.3.01
Bank	Net Profit $Am	% change	Share price 11/5/01	2001 high Ac	2001 low Ac	Cost/ income 2000	Cost/ income 2001

ANZ	907	+11.0	1446	1608	1344	51.4	N/A
NAB	2025	+28.7	3118	3118	2691	51.4	49.7
Westpac	924	+13.0	1313	1438	1222	55.5	52.2

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