FIPS
Financial Institutions
Performance Survey
March 2016 Quarterly Results

Executive
summary
Strong results delivered by a
well-capitalised New Zealand
banking sector leaves the
sector in a good position for
uncertain times ahead.

The March 2016 quarter has seen
profits increase for the banking
sector from $1.11 billion in December
2015 to $1.20 billion in March 2016
despite increased volatility seen in
the global financial markets during the
period. The increase in non-interest
income has played a significant role
in the increase of profits for the
banking sector with an increase of
$196.19 million which more than
offsets the increases in operating
expenses up by $40.29 million and
the impaired asset expense increase
of $20.35 million. Interest margins
continue to be squeezed with all
participants but one experiencing
a reduction in net interest margins
driven mainly by continued
competitive pressures for residential
mortgage lending and the low interest
rate environment. The interest margin
for the March quarter was 2.17%
compared to 2.21% in December
2015. Funding costs continue to be
low despite increased volatility in
offshore financial markets with the
average cost of funds decreasing from
3.50% in December to 3.21% in the
March quarter.

Asset growth continues to
gain momentum
Once again, the banking sector
managed to set a new record high
with total assets increasing by 4.16%
from $443,014 million in December
2015 to $461,455 million in March

2016. Lending momentum continues
with all survey participants increasing
their loan books. Gross loan and
advances increased by $6.6 billion
during the March quarter. The
continued high demand for residential
mortgages and the rising Auckland,
Christchurch (and now Hamilton and
Tauranga) property markets, continue
to play a significant part in the increase
in lending. The prolonged low dairy
prices which continue to put farmers
under cash-flow pressure, as farmers
are facing a third consecutive season
of below break-even prices also
contribute to the lending growth.
Reserve Bank of New Zealand (RBNZ)
data at May 2016 showed total yearon-year growth for agriculture lending
of 7.3%, business lending of 6.4% and
housing lending of 8.5%. The housing
lending growth is the fastest annual
growth rate since June 2008.
The banking sector managed to set
a new record high for total assets.

Economic outlook
With much of the focus being on
China’s slower economic growth and
the normalisation policy by the US
Federal Reserve in the earlier part of
the year, the attention of the global
stage was most recently shifted
to Europe with the referendum
concerning the UK’s continued
membership within the EU. The

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 2   KPMG   FIPS Quarterly Results December 2015

unexpected result of the poll which
favoured the exiting of the UK from
EU membership (or Brexit), though not
legally binding, caused immediate wide
spread panic amongst investors in the
global financial market. This sparked
a global sell-off of major indices
across the US, Europe and Asia. It is
estimated that the sell-off cost global
investors more than US$2 trillion in a
single day, a feat not seen even during
the GFC1. Since then, the global market
has been slow to recover those losses
as investors dip back into the market
with much caution.
Australia is New Zealand’s biggest
market for goods and services. The
current political instability and the
stalled election results in Australia
could weigh heavily on New Zealand’s
economy2. Any negative impact on the
Australian economy as a result of the
election outcomes will directly affect
the New Zealand economy as well. The
developments across the Tasman will
be something to watch, in particular
how smoothly and quickly they can
be resolved.
The banking sector continues to be
well-capitalised beyond minimum
regulatory levels.

In response to the escalating global
uncertainty, the banks are beginning
to take precautionary steps to help
mitigate and reduce their exposure
to global financial volatility. One such
example is the move by all four of
the major banks in New Zealand to
completely stop real estate lending
activities to foreigners and nonresidents where the loan is supported
1.  Global selloff after Brexit
2.   New Zealand economic impact

by foreign income, while also
significantly reducing the maximum
loan to income ratio on foreign
income for New Zealand citizens and
permanent residents. This recent move
aligns the four majors with what is
also taking place at the parent level in
Australia as well.

some time before these futures gain
traction and volume, allowing dairy
farmers to benefit from their use. NZX
also announced that the market could
also expect the launch of NZ milk price
option-contracts to follow shortly.

Despite global concerns, the banking
sector continues to be well-capitalised
beyond minimum regulatory levels
and even in comparison to other global
banks.

Following the release of the first
consultation paper on the review of
the outsourcing policy for registered
banks, the RBNZ issued a second
consultation paper with some changes
to its initial proposal. These include
extending the transitional period
to five years, retaining the existing
threshold for the outsourcing policy
at NZ$10 billion in liabilities (net of
related party), and the requirement for
banks to have a crisis management
plan for the functions they want to
outsource instead of an exhaustive list
of functions they are prohibited from
outsourcing. The RBNZ expects a final
version of the outsourcing policy to be
released by the end of the year.

In the latest government figures,
dairy exports fell to $11.13 billion for
the year ended 31 May 2016. This is a
10% decline from the year prior, and
it was very much expected given the
downward pressures in milk prices
during the 2nd half of 2015. Although
the latest Global Dairy Trade auction
showed prices dropped by 0.4% since
the previous auction, the second
quarter of 2016 has shown some signs
of recovery and by the end of June
2016 quarter the GDT Price Index was
nearly 11% higher than it was a the
end of the first quarter for 2016 and
3.4% higher than the index 12 months
ago3. In the last Financial Stability
report, the RBNZ has commented
that the level of non-performing loans
have only ’ticked up modestly‘, with
the banking sector’s exposures to
dairy debt rising to approximately
$40 billion4 and that the increase is due
to the banks providing dairy farmers
with working capital.
In other developments, the
New Zealand Stock Exchange (NZX)
recently launched NZ milk price futures
to add to its product offerings in order
help dairy farmers better manage price
volatility risks. However, it will take
3.   Global dairy trade price index
4.   Rising dairy debt

Regulation

In April, the RBNZ announced that
New Zealand’s financial system would
be undergoing an extensive review
by the International Monetary Fund
(IMF), focusing on key areas such as
the resilience of the finance sector
to withstand shocks, quality of the
RBNZ’s regulatory and supervisory
framework, and the RBNZ’s ability
to respond effectively to a financial
crisis. This review comes as part of
the Financial Sector Assessment
Programme undertaken by the IMF
to monitor the financial stability of its
members. The results of this review
are expected to be published by the
IMF in early 2017.
In June, the RBNZ issued a
consultation paper on the dual
registration for small foreign banks
that have not been deemed to

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 FIPS Quarterly Results December 2015   KPMG   3

be systematically important to
New Zealand’s financial stability. This
consultation proposes to allow such
banks to register as both a branch and
a subsidiary of their overseas parent.
In doing so, this could allow such
banks to better manage their capital
and liquidity levels on a consolidated
basis, while expanding lending
operations and reducing costs arising
from local capital and regulatory
requirements. However, the RBNZ
is concerned about the reduction
in oversight and regulatory powers
related to foreign banks that set up
as a branch structure and will monitor
whether the overseas parent is based
in a jurisdiction that has comparable
oversight, governance, and accounting
and transparency standards with those
of the RBNZ.
In its May 2016 Financial Stability
Report, the RBNZ continued to raise its
concerns over the overheated Auckland
housing market and the serious threat
this poses to financial stability. The
much needed relief provided by the
new loan-to-value ratio (LVR) restrictions
was short-lived, with the RBNZ
commenting that they are beginning to
see housing price pressures re-emerge
once again, and the government has
not ruled out imposing new debt-toincome restrictions.
In July the RBNZ released a paper
showing that it was serious about the
house price issue indicating it will be
moving property investors LVR ratios
to 40% and clarifying the other LVR
ratio applications. This was followed
shortly after by a number of parties
ranging from bankers, politicians, exRBNZ economists and journalists all
commentating the seriousness of the
current situation. The most noted that
being the well-reasoned and balanced
commentary from the CEO of the ANZ
Bank David Hisco.

TABLE 1: Movement in
Interest Margin

31 Mar 16 Movement Movement Movement
Quarter During the
for the 6 for the 12
Ended (%)
Quarter
Months
Months
(bps)
(bps)
(bps)

ANZ Banking Group

2.18%

-4

-5

-5

Bank of New Zealand

2.21%

0

-9

-13

Commonwealth Bank of
Australia

2.09%

-3

-4

-4

Heartland Bank6

4.58%

-60

19

13

Kiwibank Limited

1.98%

-9

-15

-14

Southland Building Society

2.61%

-2

-6

-32

The Co-operative Bank

2.61%

-10

-16

-19

TSB Bank Limited

2.03%

-5

-11

-12

Westpac Banking Corporation

2.11%

-6

-17

-15

Average

2.17%

-4

-8

-9

TABLE 2: Movement in
Impaired Asset Expense/
Average Gross Loans

31 Mar 16 Movement Movement Movement
Quarter During the
for the 6 for the 12
Ended (%)
Quarter
Months
Months
(bps)
(bps)
(bps)

ANZ Banking Group

0.08%

-1

2

1

Bank of New Zealand

0.23%

1

-15

-3

Commonwealth Bank of
Australia

0.17%

3

8

3

Heartland Bank6

0.41%

7

-9

3

Kiwibank Limited

0.10%

3

2

2

Southland Building Society

0.67%

34

5

-12

The Co-operative Bank

0.05%

-3

1

0

TSB Bank Limited

0.31%

23

178

27

Westpac Banking Corporation

0.06%

7

5

-1

Average

0.13%

2

2

0

What else is happening?
On 30 June, Moody’s retained
New Zealand’s Aaa credit rating, citing
a strong economy, low government
debt, a strong banking sector and a
strong fiscal framework and political
consensus on targeting balanced
budgets together with low debt.5
5.  Moody retains New Zealand’s rating

Last month the Co-operative Bank
announced an offer of up to $30 million
of unsecured, subordinated, Tier 2
regulatory capital debt securities to
New Zealand investors with a rating of
BB given by Fitch. The securities have
a proposed term of 10 years and offer
a 6% return for investors.
6.  See footnote 10 on page 15.

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 4   KPMG   FIPS Quarterly Results December 2015

Quarterly
analysis
An increase in profits for the
New Zealand banking sector
despite increased volatility
in global financial markets
The banking sector continues to
deliver strong results with net profit
after tax (NPAT) up by 7.96% from
December 2015 to reach $1.20 billion
in March 2016, albeit this is still down
on record highs shown during the
September quarter of $1.27 billion.

•

1   SEE FIGURE 1 – PAGE 5

TABLE 3: Analysis of Gross Loans

ANZ and BNZ were the front runners
of this quarter, with increases in net
profits of $69 million and $67 million,
respectively, with ANZ reporting
a NPAT of $416 million and BNZ
reporting a NPAT of $259 million for
this quarter. These two banks reported
a combined $242 million increase in
non-interest income, which was the
key driver behind overall profitability
for the banking sector for this
quarter. Overall, non-interest income
increased by $196.19 million; this has
significantly reversed the previous
quarter reduction in non-interest
income of $249.36 million.

•

12   SEE FIGURE 12 – PAGE 16

Quarterly Analysis
31 Dec 15
Quarter
Ended
$Million

ANZ Banking Group

118,289

Bank of New Zealand
Commonwealth Bank of Australia
Kiwibank Limited

•

15   SEE FIGURE 15 – PAGE 17

31 Mar 16
Quarter
Ended
$Million

Heartland Bank6

Leading the way, ANZ reported a
$177 million increase in non-interest
income, which has almost undone
the $178 million decline reported
in the previous quarter. This was
mainly attributable to an $88 million
favourable fair value movement in
hedging derivatives and a $55 million
increase in net fund management and
insurance fee income. BNZ showed a
similar trend, reporting a $65 million
increase in non-interest income
attributable to fair value revaluations
of financial instruments. Meanwhile,
for CBA, the $37 million reduction in
non-interest income was comprised
of a $21 million downward movement
in fair values of financial instruments
and a $16 million reduction in other
operating income.

Annual Analysis

% Increase

31 Mar 16
Quarter
Ended
$Million

31 Mar 15
Quarter
Ended
$Million

% Increase

116,573

1.47%

118,289

109,906

7.63%

71,608

70,039

2.24%

71,608

66,601

7.52%

74,004

72,644

1.87%

74,004

67,881

9.02%

3,040

2,951

3.02%

3,040

2,792

8.89%

16,489

16,402

0.53%

16,489

15,420

6.93%
19.82%

Southland Building Society

2,888

2,813

2.67%

2,888

2,410

The Co-operative Bank

1,804

1,757

2.65%

1,804

1,566

15.18%

TSB Bank Limited

3,849

3,745

2.80%

3,849

3,290

16.99%

72,537

70,959

2.22%

72,537

67,569

7.35%

364,508

357,883

1.85%

364,508

337,435

8.02%

Westpac Banking Corporation
Total
6.  See footnote 10 on page 15.

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 FIPS Quarterly Results December 2015   KPMG   5

$MILLION

1

MOVEMENT IN NET PROFIT
AFTER TAX

1,400
1,200
1,000
800
600
400
200
0
NET
DECEMBER
2015 NPAT INTEREST
INCOME

TAX
OPERATING IMPAIRED
NONASSET
EXPENSE
INTEREST EXPENSES
EXPENSES
INCOME

MARCH
2016 NPAT

$MILLION

2

RESIDENTIAL MORTGAGE
LOANS MATURITY PROFILE

225,000
200,000
175,000
150,000

FLOATING

125,000

< 1 YEAR
1>2 YEARS
2>3 YEARS
3>4 YEARS

100,000
75,000
50,000

4>5 YEARS
5 YEARS +

25,000
0

SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS

3

MAR 12

SEP 12

MAR 13

SEP 13

MAR 14

SEP 14

MAR 15

SEP 15

MAR 16

RETAIL INTEREST RATES
ON LENDING AND
DEPOSITS

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 6   KPMG   FIPS Quarterly Results December 2015

Westpac’s NPAT was down by 4.78%,
having reduced by $12 million this
quarter to $239 million. The main
drivers were a softer net interest
margin, down by 6 basis points (bps) to
2.11%, which resulted in a $6 million
reduction in net interest income,
combined with an $11 million increase
in impaired asset expense.

•

13   SEE FIGURE 13 – PAGE 16

Kiwibank reported a $9 million or
23.68% reduction in NPAT, which was
mostly due to a softer net interest
margin, down by 9 bps to 1.98%
resulting in $3 million less net interest
income, combined with a $3 million
decrease in non-interest income. For
TSB, the $2.65 million or 20.77%
reduction in NPAT was largely due to
a $2.26 million increase in impaired
asset expense.
Fair value movements on financial
instruments continue to contribute to
profit or loss volatility for the banks,
as ongoing global uncertainties,
currency volatility and sizeable shifts
in swap curves continued to feature
over the course of this quarter and to
present times.
A summary of financial performance of
the survey participants is as follows:
–– net interest income improved
slightly by 0.04% or $0.90 million;
–– non-interest income increased by
34.77% or $196.19 million;
–– operating expenses increased by
3.37% or $40.29 million;

–– impaired asset expense increased
by 20.63% or $20.35 million; and
–– tax expense increased by 11.78% or
$48.33 million.

Margins continue to be
under pressure
The overall net interest margin eased
by 4 bps from 2.21% in December
down to 2.17% in March (see Table 1
– page 3). The 1.85% growth in
gross loans, although amounting to
$6.63 billion, did not translate into a
much higher net interest income which
at $2.25 billion showed only a marginal
$0.9 million increase on the previous
quarter. The net interest margin has
continued to decline every quarter for
the past four consecutive quarters,
down by a total of 14 bps from 2.31%
in June 2015 to 2.17% in March
2016, attributable to the continued
competitive pressures felt by the
survey participants and the prevailing
low interest rate environment with
customers continuing to prefer lower
margin fixed rate loans.
Effective floating and fixed mortgage
rates fell at a greater pace than the
fall experienced in average interest
margins, down by 24 bps and 23 bps
respectively since December, meaning
that the banking sector enjoyed some
relief on the funding side that caused
the overall margin fell less than it
otherwise would have.

•

3   SEE FIGURE 3 – PAGE 5

Of the major banks, Kiwibank
reported the largest decline in the
net interest margin of 9 bps down
to 1.98%, followed by Westpac with
a decline of 6 bps, down to 2.11%,
ANZ with a decline of 4 bps during
this quarter to 2.18%, and CBA with
3 bps down to 2.09%. Decreases in
net interest margins were reported
across all survey participants except
BNZ, which managed to maintain its
margin at 2.21%. As the NZD swap
curve shifted downwards over the
course of the March quarter, both
the overall interest income relative to
average interest earning assets fell
by 30 bps from 5.26% to 4.97%, and
the overall interest expense relative to
interest bearing liabilities fell by 29 bps
to 3.21%.
Since the end of March, through to
early July, the NZD swap curve has
become flatter at the three year and
longer durations, possibly indicating
that interest rates are now expected
to stay lower for longer. However,
global uncertainties continue to
dominate financial markets, with the
recent Brexit vote exasperating the
situation overseas, leading to declines
in commodity and equity markets as
investors flee to safer assets such as
US Treasuries and Sovereign debt,
in turn adversely impacting global
liquidity and credit spreads. The
current outlook is an extended period
of uncertainty for the global financial
markets, while the UK Government
has yet to invoke the legal process of
leaving the EU.

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 FIPS Quarterly Results December 2015   KPMG   7

%

4

MAJOR BANKS: GROSS
IMPAIRED VS IMPAIRED
ASSET EXPENSE

0.60

0.40

0.20

GROSS IMPAIRED LOANS/GROSS LOANS
AND ADVANCES
IMPAIRED ASSET EXPENSE/AVERAGE
GROSS LOANS AND ADVANCES

0.00

-0.20
JUN 14

SEP 14

DEC 14

MAR 15

JUN 15

SEP 15

DEC 15

MAR 16

$BILLION

5

MOVEMENT IN
PROVISIONING

%

2.5

1.25

2.0

1.00

1.5

0.75

1.0

0.50

0.5

0.25

TOTAL PROVISION FOR DOUBTFUL DEBTS/
GROSS LOANS AND ADVANCES (RHS)
COLLECTIVE PROVISION (LHS)
INDIVIDUAL PROVISION (LHS)

0.00

0.0
MAR 11

MAR 12

MAR 13

MAR 14

MAR 15

$BILLION

6

MAJOR BANKS: INTEREST
EARNING ASSETS
COMPARED TO INTEREST
INCOME AND EXPENSE

INTEREST INCOME (LHS)

MAR 16

$BILLION

6.0

420

5.0

400

4.0

380

3.0

360

2.0

340

1.0

320

INTEREST EXPENSE (LHS)
INTEREST EARNING ASSETS (RHS)
NET PROFIT (LHS)

0.0

300
MAR 12

SEP 12

MAR 13

SEP 13

MAR 14

SEP 14

MAR 15

SEP 15

MAR 16

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 8   KPMG   FIPS Quarterly Results December 2015

•

Favourable funding
conditions continue despite
volatility in financial markets

7   SEE FIGURE 7 – PAGE 9

Participants continue to report
reduced funding costs across the
board, for the second consecutive
quarter, with overall interest costs
relative to average interest bearing
liabilities down by 29 bps from 3.50%
to 3.21% in March driven mainly by
lower deposit rates. The four major
banks reported reductions ranging
between 30 bps by BNZ to 26 bps by
ANZ, closely followed by Kiwibank
with 23 bps. TSB reported the smallest
reduction of 4 bps to 3.38%, followed
by Co-operative Bank’s reduction of
6 bps to 3.87%.

Heartland continues to report the
highest funding costs, with interest
costs at 3.95%6 relative to average
interest bearing liabilities. However,
this was compensated with relatively
higher interest income compared
to the other survey participants
to produce a net interest margin
of 4.58%6 for the March quarter.
Remaining participants reported
margins from 1.98% by Kiwibank to
2.61% by both Southland Building
Society and Co-operative Bank.

Costs of funding derived from shortterm local deposits continued to
decrease this quarter, with RBNZ data
released for April showing a further
14 bps drop in six-month deposit rates,
down to 3.17%.
The Core Funding Ratio for the banking
sector strengthened from 86.1% in
March to 86.6% in April, and remains
well above the regulatory minimum
of 75%, still leaving plenty of room to
seek alternative sources of funding.
In the latest Official Cash Rate (OCR)
move on 9 June, the RBNZ has left
the OCR unchanged at 2.25%, in their
press release stating that inflation was
expected to strengthen reflecting the
accommodative stance of monetary
policy, expected increases in fuel

TABLE 4: Movement in Over 80% LVR Lending (On and Off Balance Sheet)
Quarterly Analysis

Quarterly Analysis
31 Mar 16

Six Month Analysis

Movement
31 Dec 15 During the % Change
Quarter

31 Mar 16

$Million

$Million

$Million

ANZ Banking Group

8,166

8,286

-120

-1.45

8,166

8,650

-484

-5.60

Bank of New Zealand

3,251

3,201

50

1.56

3,251

3,304

-53

-1.60

Commonwealth Bank of
Australia

7,505

7,688

-183

-2.38

7,505

8,013

-508

-6.34

23

22

0

2.20

23

17

6

33.44

1,862

1,943

-81

-4.17

1,862

1,858

4

0.22

316

325

-10

-2.96

316

392

-77

-19.54

6

Heartland Bank

Kiwibank Limited
Southland Building Society

$Million

Movement
During the
30 Sep 15
% Change
Six Month
Period
$Million
$Million

The Co-operative Bank

196

186

10

5.38

196

184

12

6.60

TSB Bank Limited

383

388

-5

-1.30

383

381

2

0.61

Westpac Banking Corporation
Total

7,664

7,722

-58

-0.75

7,664

7,855

-191

-2.43

29,366

29,762

-396

-1.33

29,366

30,655

-1,289

-4.20

6.  See footnote 10 on page 15.

© 2016 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

 FIPS Quarterly Results December 2015   KPMG   9

%

MAJOR BANKS: AVERAGE
COST OF FUNDING

7

4.4
4.2
4.0
3.8
3.6

ANZ

3.4

BNZ
CBA + ASB

3.2

KIWIBANK
WESTPAC

3.0
2.8
JUN 14

8

NEW MORTGAGE LENDING
BY BORROWER TYPE

BUSINESS PURPOSES

SEP 14

DEC 14

MAR 15

JUN 15

SEP 15

DEC 15

MAR 16

$MILLION

%

8,000

38

7,000

36

6,000

34

5,000

32

4,000

30

3,000

28

2,000

26

1,000

24

INVESTOR
OTHER OWNER OCCUPIER
FIRST HOME BUYER
INVESTOR LENDING (%)

0

9

22
SEP 15

SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS

OCT 15

NOV 15

DEC 15

JAN 16

FEB 16

MAR 16

APR 16 MAY 16

$MILLION

%

8,000

60

7,000

55

6,000

50

5,000

45

4,000

40

3,000

35

INTEREST ONLY (INCLUDING REVOLVING
CREDIT)

2,000

30

PROPORTION OF NEW LENDING INTEREST
ONLY – INVESTOR

1,000

25

NEW LENDING BY
PAYMENT TYPE

PRINCIPAL AND INTEREST

0
SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS

20
SEP 15

OCT 15

NOV 15

DEC 15

JAN 16

FEB 16

MAR 16

APR 16

MAY 16

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 10   KPMG   FIPS Quarterly Results December 2015

and other commodity prices, an
expected depreciation in the NZD and
some increase in capacity pressures.
In addition, the RBNZ would have
been worried about the effect that a
reduction of interest rates would have
had in an already overheated Auckland
property market. However, the
RBNZ also said that monetary policy
will continue to be accommodative
and further policy easing may be
required to ensure that future average
inflation settles near the middle of the
target range.

•

3   SEE FIGURE 3 – PAGE 5

Global events have had a direct
impact on OCR forecasts here in
New Zealand, with the major banks
commenting on downward pressures
to the OCR ahead of the next
announcement due in August, but
the position remains far from clear.
As global economic developments
continue to unfold, this will be the
space to watch ahead of the next OCR
announcement in August.
With lower swap rates, credit margins
still form a substantial component
of funding costs and continue to
pose concerns for banks. Recent
bond issuances include $700 million
five-year bonds with a 3.795%
coupon issued by Westpac in April,
$200 million three-year floating rate
bonds with a 1.15% margin issued
by Kiwibank in May, and $250 million
seven-year bonds with a 4.102%
coupon issued by BNZ in June.

Lending growth continue to
increase at a fast pace
Lending growth continues to gain
momentum, with the four major
banks accounting for 93.93% of the
$6.63 billion total growth in lending.
Of the major banks, BNZ achieved the
greatest percentage growth at 2.24%
or $1.57 billion, closely followed by
Westpac with 2.22% or $1.58 billion.
BNZ noted that the success behind
the strong volume growth in housing
lending was driven by a number of
strategies put in place to gain market
share through a range of channels,
including re-entering the broker market
and expanding the mobile mortgage
workforce. ANZ achieved the smallest
percentage increase among the big
four banks at 1.47%, however, this
still translated to the largest dollar
increase at $1.72 billion due to the
relative size of its existing loan book.
ANZ has also noted that investing in
new digital capabilities making banking
easier for their customers had a big
part in the growth of housing and small
business lending.

•

14   SEE FIGURE 14 – PAGE 16

Heartland achieved the highest
percentage growth rate of the survey
participants at 3.02% or $88.98 million,
in its first quarter operating as the
newly formed amalgamated entity
post 31 December 2015. Whilst the
smallest incremental percentage
increase was reported by Kiwibank
at 0.53% or $87 million (see Table 3 –
page 4).

RBNZ data released in May shows
some recovery in business lending
growth rates. These were reported at
6.4% in May after showing some signs
of slowing down when they dipped
from 7.6% in January down to 5.5%
by March. Growth rates in agriculture
lending continued on a downward
trend, easing from a peak 9.3% in
September to 7.3% in May, with the
proportion of lending to the agricultural
sector slowly shrinking from 8.49% in
December to 8.41% in May, pointing
to the banks’ continued caution
around their exposure to this sector.
It appears lessons have been learnt
from the last dairy downturn in 2009
as banks continue to be proactive
managing their dairy exposures and
continue to work with their customers
in these tough times for dairy
prices. Agriculture lending reached
$59.99 billion, while business lending
reached $91.92 billion in May.
Mortgage lending continues to
dominate the banks’ loan books,
reaching a new high of $227.7 billion,
up by 3.91% or $8.4 billion since
December. The housing market
continues to be buoyant, with the
latest REINZ statistics showing the
median national sale price jumping
to $506,000 in May, an all-time high,
while sales volumes rose 14% to
9,075. With the median prices for
five regions hitting all-time highs, the
Auckland market is no longer the sole
driver behind house price growth, with
Auckland’s median price rising slower
than the national median price, having
increased by 7.5% to $805,000 in May,
and Auckland’s share of sales based
on numbers over the past two years
falling from 40% to 34%. The latest

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 FIPS Quarterly Results December 2015   KPMG   11

%

10

COMPOSITION OF LENDING
BY LVR SPEED LIMITS

%

100

14.0

90

13.5

80

13.0

70

12.5

NON-AUCKLAND LVR < 80% ($MILLIONS)

60

12.0

AUCKLAND OWNER-OCCUPIER LVR
> 80% ($MILLIONS)

50

11.5

AUCKLAND OWNER-OCCUPIER LVR
< 80% ($MILLIONS)

40

11.0

30

10.5

AUCKLAND INVESTOR LVR < 70% ($MILLIONS)

20

10.0

TOTAL LENDING OUTSIDE LVR SPEED
LIMITS/TOTAL LENDING

10

9.5

NON-AUCKLAND LVR > 80% ($MILLIONS)

AUCKLAND INVESTOR LVR > 70% ($MILLIONS)

9.0

0
NOV 15

SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS

DEC 15

JAN 16

FEB 16

MAR 16

APR 16

MAY 16

%

ANZ

BNZ

CBA + ASB

30 SEP 15

31 MAR 16

30 SEP 14

31 MAR 15

30 SEP 15

KIWIBANK

31 MAR 16
31 MAR 14

30 SEP 14

31 MAR 15

30 SEP 15

0
31 MAR 16
31 MAR 14

0.00
30 SEP 14

50

31 MAR 15

0.25

30 SEP 15

100

31 MAR 16
31 MAR 14

0.50

30 SEP 14

150

31 MAR 15

0.75

30 SEP 15

200

31 MAR 16
31 MAR 14

1.00

31 MAR 15

250

31 MAR 14

GROSS IMPAIRED/GROSS LOANS AND
ADVANCES (LHS)
PAST DUE/GROSS LOANS AND ADVANCES
(LHS)
TOTAL PROVISIONS/PAST DUE AND GROSS
IMPAIRED ASSETS (RHS)

%

1.25

30 SEP 14

11

MAJOR BANKS: PAST DUE
AND GROSS IMPAIRED
ASSETS VS GROSS LOANS
AND ADVANCES

WESTPAC

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 12   KPMG   FIPS Quarterly Results December 2015

Quotable Value (QV) report also shows
nationwide residential property values
increasing by 13.5% over the past year
reaching an average value of $590,909
with values being 42.6% above the
previous market peak of late 2007.
These increases are mainly driven by
strong investor demand, low interest
rates, continued buoyant market
conditions in Auckland and strong net
migration. The Auckland average value
was $974,087 according to QV. QV
also reports a surge in investor activity
in recent times due to the RBNZ
signalling that they may introduce
further restrictions to property
investors later this year.

The Auckland property market is no
longer the sole driver behind lending
growth, the $7.3 billion mortgage
lending is made up of $3.95 billion
Auckland lending and $3.34 nonAuckland lending, which increased
by 67% and 33% since December,
respectively.

RBNZ data on new mortgage lending
as at May 2016 showed that it had
reached $7.3 billion, an increase of
$1.3 billion in lending since December
2015. The movement is mainly driven
by investor lending which increased
by $692 million or 34.50%, followed
by owner occupiers, which includes
first home buyers with $562 million or
a 14.26% increase, and an increase
of $32 million for business purposes.
Further assessment of the increase
in new mortgage lending by payment
type shows an increase of 18.37% in
principal and interest and 26.09% in
interest-only loans. The share taken up
by the investors increased to 50.36%
of all interest-only loans in May, up
from the previous peak of 45.57%
in December.

•

•
•

8   SEE FIGURE 8 – PAGE 9

By the end of May, borrowers’
preference has markedly shifted
towards one-year fixed mortgages,
reaching 39.75% of mortgages written
(up from 34.41% in December).
Meanwhile, the proportion of twoyear fixed mortgages and floating
mortgages shrunk by 335 bps down
to 27.47%, and by 70 bps down to
23.17%, respectively.

5   SEE FIGURE 5 – PAGE 7

Looking further into the detail, the
impaired asset expense relative to
average gross loans and advances
increased marginally by 2 bps to
0.13% in March (see Table 2 – page 3).
Collective provisioning rose slightly
by 1 bp to 0.43% relative to gross
loans and advances, while individual
provisioning improved by 54 bps to
33.26% of gross impaired assets.

•

17   SEE FIGURE 17 – PAGE 17

The banking sector has reported
a marginal improvement in gross
impaired assets, down from 0.36%
to 0.35% relative to gross loans and
advances, mostly driven by solid

lending growth this quarter. However,
the overall levels of past due assets
relative to gross loans and advances
have increased, with this ratio up by
8 bps to 0.18%. ANZ, BNZ and CBA
reported the largest increases in past
due assets of $43 million, $40 million
and $17 million, respectively, pushing
up their ratios of past due assets to
gross loans and advances by 3 bps,
5 bps, and 2 bps, respectively. Among
the major banks, BNZ reported the
highest percentage of past due assets
relative to the size of its loan book at
0.29%, compared to the next highest
at 0.19% reported by ANZ.

•
•

4   SEE FIGURE 4 – PAGE 7

11   SEE FIGURE 11 – PAGE 11

The outlook for the dairy sector
continues to be of a concern for all
banks with some banks reporting
increases in collective provisioning
to reflect the increased risk of
deterioration of certain dairy loans. BNZ
reported that its collective provision
increased by $38 million as at 31 March
2016 compared to the previous year,
mainly driven by an increase in the
provisioning for dairy loans due to
prolonged lower dairy prices and
also due to the fact that the bank is
an earlier adopter of IFRS 9 Financial
Instruments meaning that they are
recognising the provisions sooner than
they would under the old standard.

9   SEE FIGURE 9 – PAGE 9

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 FIPS Quarterly Results December 2015   KPMG   13

According to the latest Financial
Stability Report published by the RBNZ
in May, the “total non-performing
loans (NPLs) for the banking sector
have continued to fall from their postGFC peak of 2.2% in 2011, down to
$2.1 billion in March, representing
around 0.5% of the total stock of
lending. Falling NPLs were driven by
declines in most sectors, reflecting the
relatively strong domestic economic
performance.”

or $40.29 million, to reach $1.24 billion
mainly due to the continued
investment in digital services as
customers’ preferences continue to
evolve. When looking at operating
costs relative to the more recurring
interest income, there appears to be
some deterioration in operating cost
efficiencies, as this ratio has increased
by 164 bps to 23.97%. 

The RBNZ reported that the recently
implemented LVR speed limits appear
to have taken some of the heat out of
the Auckland market, with nationwide
high-LVR lending declining from 21% in
2013 to 13% by the end of 2015. Based
on new statistics published by the
RBNZ, it can be observed that between
the months of November 2015 and
May 2016, the high-LVR lending further
reduced from 12.3% to 11.2% (see
Table 4 – page 8).

16   SEE FIGURE 16 – PAGE 17

•

10   SEE FIGURE 10 – PAGE 11

Operating costs ratio
The banking sector has improved
its operating costs ratio, reporting a
145 bp reduction, down to 41.07% this
quarter. The $197.08 million increase
in operating income was largely
attributable to the $196.19 million
increase in non-interest income, which
included $242 million in fair value
movements and net trading gains
reported by ANZ and BNZ, while net
interest income remained broadly
the same at $2.25 billion this quarter.
On the other side of this ratio, overall
operating costs increased by 3.37%

•

ANZ has improved its operating costs
ratio, with the $174 million uplift in
operating income more than making
up for the $66 million increase in
operating costs. ANZ New Zealand
said its increase in operating expenses
is associated with an accounting
change to the application of the ANZ
group’s software capitalisation policy
which means bringing forward the
recognition of software expenses
resulting in lower amortisation
charges in future years. BNZ has
achieved the largest reduction in
operating costs, down by $14 million
or 6.25%. Among the other banks,
the more notable operating cost
reductions were achieved by Heartland
Bank at $4.57 million or 20.25%,
and Southland Building Society at
$3.44 million or 16.81%.
As a result of the current low interest
rate environment, coupled with
prevailing competitive pressures in the
lending market, continuing customer
demand for new digital services and
ongoing regulatory developments,
operating cost management continues
to be one of the key priorities for banks
this year.

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 14   KPMG   FIPS Quarterly Results December 2015

Major banks – Quarterly analysis
Entity

Size & Strength Measures
30 Jun 14

30 Sep 14

31 Dec 14

31 Mar 15

30 Jun 15

30 Sep 15

31 Dec 15

31 Mar 16

152,038
86,629
81,321
2,825
18,686
3,163
1,896
6,208
88,203
440,968

152,289
86,819
81,785
3,290
18,858
3,286
1,971
6,299
88,416
443,014

160,801
89,913
86,012
3,334
19,227
3,408
2,029
6,424
90,309
461,455

0.86
1.72
2.29
-16.53
2.24
2.71
4.28
3.39
1.99
1.51

1.51
2.35
2.53
22.19
2.51
2.04
4.23
4.57
1.38
2.09

1.47
2.24
1.87
3.02
0.53
2.67
2.65
2.80
2.22
1.85

13.30
12.67
13.30
12.85
12.80
14.21
16.20
15.77
13.30

13.30
13.26
14.10
14.46
12.80
14.27
15.80
14.86
13.90

13.70
12.58
13.70
14.01
12.90
13.76
15.80
14.52
14.00

467
241
234
10
33
4
3
25
249
1,266

347
192
243
15
38
5
3
13
251
1,107

416
259
220
14
29
6
2
10
239
1,195

Total Assets9 ($Million)
ANZ7
BNZ
CBA + ASB7
Heartland Bank10
Kiwibank
Southland Building Society
The Co-operative Bank Limited
TSB Bank Limited
Westpac7
Total

132,422
75,845
72,077
2,368
16,590
2,786
1,664
5,655
80,392
389,799

135,074
79,522
73,483
2,431
16,882
2,825
1,704
5,736
80,963
398,619

ANZ7
BNZ
CBA + ASB7
Heartland Bank10
Kiwibank
Southland Building Society
The Co-operative Bank Limited
TSB Bank Limited
Westpac7
Average

1.30
1.45
0.96
3.77
1.85
-0.53
2.58
0.94
0.95
1.22

1.31
0.93
1.87
3.15
0.66
-0.10
2.74
0.20
1.24
1.30

135,290
79,658
74,149
3,112
17,064
2,826
1,770
5,908
82,442
402,219

140,253
81,926
76,994
3,148
17,948
2,858
1,795
5,908
82,087
412,917

150,664
85,657
80,147
3,308
18,228
3,094
1,838
5,991
87,455
436,382

Increase in Gross Loans and Advances (%)
1.53
1.16
1.19
33.06
2.20
2.88
2.93
3.04
1.67
1.68

1.75
1.57
2.75
1.55
2.04
2.50
2.19
1.73
1.51
1.88

3.60
1.01
2.04
3.65
1.50
11.34
3.24
5.27
1.57
2.34

Capital Adequacy (%)
ANZ
BNZ
CBA + ASB7
Heartland Bank10
Kiwibank
Southland Building Society
The Co-operative Bank Limited
TSB Bank Limited
Westpac7, 8

12.10
11.82
12.00
14.39
13.00
15.64
16.80
14.77
11.70

12.70
12.04
11.10
14.09
13.20
16.02
16.80
14.98
12.30

11.80
12.28
12.70
13.76
13.30
16.07
16.50
13.48
11.60

ANZ
BNZ
CBA + ASB7
Heartland Bank10
Kiwibank
Southland Building Society
The Co-operative Bank Limited
TSB Bank Limited
Westpac7
Total

390
205
191
10
26
4
2
16
281
1,125

468
252
227
10
35
6
2
12
242
1,254

425
232
214
14
36
5
3
-18
244
1,154

7, 8

12.60
12.90
12.10
13.36
12.40
15.61
16.50
13.85
12.10

12.50
12.59
12.70
12.86
13.40
14.59
16.30
13.71
12.40

Net Profit ($Million)
7

452
270
218
13
29
4
2
16
247
1,251

427
295
212
12
27
6
2
13
266
1,261

7.  The results for Australia and New Zealand Banking Group, Commonwealth Bank of
Australia and Westpac Banking Corporation relate to the total New Zealand operations of
these entities.
8.  The capital adequacy ratio’s reported are for the overseas banking group.
9.  Total Assets = Total Assets - Intangible Assets.

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 FIPS Quarterly Results December 2015   KPMG   15

Entity

Profitability Measures
30 Jun 14

30 Sep 14

31 Dec 14

ANZ7
BNZ
CBA + ASB7
Heartland Bank10
Kiwibank
Southland Building Society
The Co-operative Bank Limited
TSB Bank Limited
Westpac7
Average

2.27
2.37
2.29
4.94
1.96
2.81
2.85
2.17
2.18
2.28

2.32
2.28
2.40
4.99
2.13
2.97
2.95
2.30
2.23
2.32

2.33
2.28
2.40
5.46
2.17
2.97
2.90
2.15
2.28
2.34

ANZ7
BNZ
CBA + ASB7
Heartland Bank10
Kiwibank
Southland Building Society
The Co-operative Bank Limited
TSB Bank Limited
Westpac7
Average

0.73
0.53
0.64
0.45
0.58
0.77
1.17
0.33
0.73
0.66

1.00
1.06
0.58
0.33
0.72
0.93
1.14
0.38
0.78
0.86

31 Mar 15

30 Jun 15

30 Sep 15

31 Dec 15

31 Mar 16

2.23
2.30
2.13
4.39
2.13
2.67
2.77
2.14
2.28
2.25

2.22
2.21
2.12
5.18
2.07
2.63
2.71
2.08
2.17
2.21

2.18
2.21
2.09
4.58
1.98
2.61
2.61
2.03
2.11
2.17

0.33
0.42
0.77
0.89
0.62
1.03
1.02
0.20
0.63
0.51

0.77
0.71
0.57
0.45
0.55
0.97
0.64
0.21
0.62
0.67

Interest Margin (%)
2.23
2.34
2.13
4.45
2.12
2.93
2.80
2.15
2.26
2.26

2.21
2.36
2.35
4.43
2.07
2.86
2.81
2.12
2.32
2.31

Non-interest Income/Total Tangible Assets (%)
0.79
0.63
0.63
0.87
0.73
0.96
1.13
0.35
0.73
0.71

0.90
0.94
0.70
0.53
0.57
1.03
0.24
0.40
0.66
0.80

0.76
0.97
0.39
0.64
0.57
0.98
1.00
0.24
0.73
0.71

0.80
0.83
0.66
0.36
0.59
0.95
0.99
0.38
0.69
0.74

Impaired Asset Expense/Average Gross Loans and Advances (%)
ANZ
BNZ
CBA + ASB7
Heartland Bank10
Kiwibank
Southland Building Society
The Co-operative Bank Limited
TSB Bank Limited
Westpac7
Average

0.07
0.11
0.16
0.46
-0.11
0.51
0.07
0.11
0.01
0.08

0.04
0.12
0.10
0.36
0.08
0.35
0.08
0.85
0.13
0.10

ANZ
BNZ
CBA + ASB7
Heartland Bank10
Kiwibank
Southland Building Society
The Co-operative Bank Limited
TSB Bank Limited
Westpac7
Average

39.85
41.67
38.15
47.98
70.19
63.33
81.97
36.91
39.64
41.51

37.81
43.07
37.66
49.15
56.78
62.83
82.85
38.20
37.70
40.20

7

0.05
0.02
0.29
0.54
0.16
0.43
0.07
6.06
0.12
0.17

0.07
0.26
0.14
0.38
0.08
0.79
0.05
0.04
0.07
0.13

0.10
0.10
0.08
0.62
0.03
0.31
0.16
0.07
0.08
0.09

0.06
0.38
0.09
0.50
0.08
0.62
0.04
-1.47
0.01
0.11

0.09
0.22
0.14
0.34
0.07
0.33
0.08
0.08
-0.01
0.11

0.08
0.23
0.17
0.41
0.10
0.67
0.05
0.31
0.06
0.13

43.30
42.26
36.76
49.59
59.35
70.22
73.38
47.83
40.48
42.52

42.41
34.94
37.98
43.96
62.39
57.43
81.41
51.65
40.80
41.07

Operating Expenses/Operating Income (%)
7

39.02
39.67
37.04
50.77
54.10
66.27
77.95
37.95
38.97
40.04

36.61
32.91
37.60
48.02
62.07
62.82
78.63
43.59
37.89
37.92

38.03
34.47
41.19
50.35
67.52
60.39
80.40
44.68
38.95
39.84

36.34
35.81
37.73
49.94
59.84
67.73
77.65
42.50
43.11
39.52

10.  Operating income for Heartland includes net interest income, net operating lease income,
other income and fee income. Heartland Bank Limited’s amalgamation with one of its
wholly owned subsidiaries was effective from 31 December 2015. Data and ratios on
September 2015 and its prior year comparative that have been used for the purpose of
analysis do not reflect the amalgamation as September 2015 restated financials are not
publicly available. Ratios calculated in this Survey may differ if September 2015 and its
prior year comparative had been used for the purpose of analysis.

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 16   KPMG   FIPS Quarterly Results December 2015

$MILLION

12

MAJOR BANKS: NET
PROFIT

500
450
400
350
300
250

ANZ

200

BNZ

150

CBA + ASB
KIWIBANK
WESTPAC

100
50
0
JUN 14

SEP 14

DEC 14

MAR 15

JUN 15

JUN 14

SEP 14

DEC 14

MAR 15

JUN 15

JUN 14

SEP 14

DEC 14

MAR 15

JUN 15

DEC 15

MAR 16

SEP 15

DEC 15

MAR 16

SEP 15

DEC 15

MAR 16

SEP 15

%

13

MAJOR BANKS: INTEREST
MARGIN

2.5
2.4
2.3
2.2
2.1

ANZ

2.0

BNZ
CBA + ASB

1.9

KIWIBANK
WESTPAC

1.8
1.7

%

14

MAJOR BANKS: INCREASE
IN GROSS LOANS AND
ADVANCES

4.0
3.5
3.0
2.5
2.0

ANZ

1.5

BNZ
CBA + ASB

1.0

KIWIBANK
WESTPAC

0.5
0.0

© 2016 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

 FIPS Quarterly Results December 2015   KPMG   17

%

15

MAJOR BANKS: NONINTEREST INCOME/
AVERAGE TOTAL ASSETS

1.20

1.00

0.80

0.60
ANZ
BNZ

0.40

CBA + ASB
KIWIBANK

0.20

WESTPAC

0.00
JUN 14

SEP 14

DEC 14

MAR 15

JUN 15

SEP 15

DEC 15

MAR 16

JUN 14

SEP 14

DEC 14

MAR 15

JUN 15

SEP 15

DEC 15

MAR 16

JUN 14

SEP 14

DEC 14

MAR 15

JUN 15

SEP 15

DEC 15

MAR 16

%

16

MAJOR BANKS:
OPERATING EXPENSES/
OPERATING INCOME

80
75
70
65
60
55

ANZ

50

BNZ

45

CBA + ASB
KIWIBANK
WESTPAC

40
35
30

%

17

MAJOR BANKS: IMPAIRED
ASSET EXPENSE/AVERAGE
GROSS LOANS AND
ADVANCES

0.50
0.40
0.30
0.20

ANZ

0.10

BNZ
CBA + ASB
KIWIBANK

0.00
-0.10

WESTPAC

-0.20

© 2016 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

 KPMG’s Financial Services Team
John Kensington

Kay Baldock

Head of Financial Services
+64 (09) 367 5866
jkensington@kpmg.co.nz

Partner – Audit
+64 (09) 367 5316
kbaldock@kpmg.co.nz

Ross Buckley

Jamie Munro

Executive Chairman
+64 (09) 367 5344
rjbuckley@kpmg.co.nz

Partner – Audit
+64 (09) 367 5829
jamiemunro@kpmg.co.nz

Godfrey Boyce

Hudson Lopez

Chief Executive Officer
+64 (04) 816 4514
gboyce@kpmg.co.nz

Partner – Audit
+64 (09) 367 5918
hudsonlopez@kpmg.co.nz

Graeme Edwards

Gary Ivory

National Managing Partner – Audit
+64 (04) 816 4522
gdedwards@kpmg.co.nz

Partner – Corporate Finance
+64 (09) 367 5943
givory@kpmg.co.nz

Jack Carroll

Ceri Horwill

National Managing Partner – Advisory
+64 (04) 816 4516
jackcarroll@kpmg.co.nz

Partner – Advisory
+64 (09) 367 5348
cerihorwill@kpmg.co.nz 

Ross McKinley

Philip Whitmore

National Managing Partner – Tax
+64 (09) 367 5904
rdmckinley@kpmg.co.nz

Partner – IT Advisory
+64 (09) 367 5931
pwhitmore@kpmg.co.nz

Paul Herrod

Chris Dew

Partner – Audit
+64 (09) 367 5323
pherrod@kpmg.co.nz

Partner – Advisory
+64 (09) 363 3230
cdew@kpmg.co.nz

Matthew Prichard

Bruce Bernacchi

Partner – Audit
+64 (09) 367 5846
matthewprichard@kpmg.co.nz

Partner – Tax
+64 (09) 3633288
bbernacchi@kpmg.co.nz

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© 2016 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
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