Quake impact biggest uncertainty facing banks: KPMG

By Jenny Ruth

Tuesday 3rd May 2011

The biggest uncertainty the banking sector faces is the as-yet unquantifiable impact of the Christchurch earthquakes, says accounting firm KPMG.

“All of the banks will suffer some losses, although these have yet to be determined. The bigger impact will be on the residual effects on the regional and national economies, further delaying recovery and compounding banks' weak lending growth in the coming year,” KPMG says in its latest survey of financial institutions.

Westpac is the only bank to have publicly disclosed its estimated provisioning for the quakes, losses between $30 million and $100 million, and, due to the strength of the former TrustBank business in Canterbury, Westpac may have a somewhat higher exposure than some of the other major banks, it says.

“However, all the major banks will have a significant exposure to the credit losses resulting from the earthquake but, given the number of variables involved, the range of possible (first and second order) credit losses will be wide,” KPMG says.

It says an estimated 50,000 people have left the city of which 20% are considered to be permanent departures and out of 6,000 businesses about 2,500 will never reopen.

“Employment, or lack of it, is the key near-term issue and will determine the extent of the damage from further economic events,” it says.

All the banks expect the second major quake delayed the rebuilding of Christchurch by six to nine months and it won't be until next year before the economy starts to show some serious growth.

The government's response and the speed of insurance payouts will be key determinants of the recovery.

“Payouts may well result in further deleveraging as newly capitalised businesses and households move to pay down debt.”

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