Banking survey shows you don't have to be popular to succeed

By NZPA

Thursday 24th October 2002

Two of New Zealand's least satisfactory banks according to customers, ANZ and Westpac, were also two of the most profitable, according to Massey University's quarterly banking survey out today.

However, the June 2002 quarter survey showed the Bank of New Zealand's profitability took a big hit, falling from about 2.5 percent return on assets to under 1.5 percent.

ANZ bank, whose New Zealand operations posted a 19 percent rise in annual net profits today, saw return on assets rise to about 1.8 percent, from the previous quarter's 1.4 percent.

Westpac, which recently changed its name from WestpacTrust, saw profitability soar to 2.6 percent from 1.2 percent.

ANZ was voted the most unpopular bank for the second year running by a Consumer Magazine survey out this month, followed by Westpac Trust and Bank of New Zealand.

David Tripe of Massey University's Centre for Banking Studies called the low home lending rates offered by several banks "a desperate pursuit of market share", and said the banks were unlikely to make money on the packages. "In my view it's lunacy," he told NZPA.

He said the arrival of Kiwibank had not impacted on banks' margins, despite its agenda of keeping interest rates low.

"Another possible explanation for the increase in interest margins would be that the general level of interest rates had risen, allowing the banks to increase their loan rates without increasing their deposit rates.

"Our general experience is that the banks' interest margins are independent of the general level of interest rates, except in the case of TSB Bank," he said.

"In this particular quarter, the deposit margin has increased by more than the revenue margin has decreased, resulting in some widening of the spread, but there is no indication that this is other than a temporary phenomenon which should be expected to reverse itself over the next quarter."

All six of the large, predominantly retail banks surpassed the benchmark 1 percent return on assets, with an aggregate return on assets for those banks of 1.76 percent, up from 1.47 percent in the previous quarter.

Profits have now been above the 1 percent level for 15 successive quarters.

The survey did not include state-owned Kiwibank, which Mr Tripe said was currently too new and too small, with deposits of just $86.2 million and loans of $43 million, to have much impact.

"For all that, the bank has reported significant revenue for the quarter, with non-interest income of $9.2 million (although this is rather less than operating expenses, which were $15.9 million)," he said.

Underlying profitability -- before bad and doubtful debt expense, extraordinary items and tax -- was less volatile between the six banks, and led by ANZ at 2.4 percent return of average total assets.

Banks' net interest income, which rose to 2.53 percent from 2.29 percent, underpinned underlying profitability.

ANZ and WestpacTrust appeared to have achieved their rise in quarterly profitability through the sale of parts of their businesses, Mr Tripe said.

ANZ made an extraordinary profit of $36 million selling its New Zealand funds management operations to ING Australia, while WestpacTrust clocked up $104.9 million from the sale of "certain assets" of AGC (NZ) to GE Finance and Insurance.

Banks increased rural lending slightly during the quarter, although that was not a particularly high-yielding sector.

Farm incomes were expected to fall in the coming season as a result of the strengthening New Zealand dollar and falling international prices, although any real impact could be more than a year away.

Total provisions for bad and doubtful debts increased to $719 million from $691 million, largely as a result of a failure of the receivers to sell the Central North Island Forestry Partnership.

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