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19 Sep 2016

Kiwi Banks Performing Well

New Zealand's banks continue to perform well, with ASB, ANZ, BNZ, and Westpac all rated as stable in the latest Fitch report. Not only are the big four banks making more money than their peers in other countries, they are doing so with a conservative risk appetite and robust risk management practices. The Reserve Bank's restrictions on low-deposit lending helped bring home a positive report, as did a belief that the banks' Australian parent companies would support them if they ran into trouble.

According to ratings agency Fitch, recent moves to cool the housing market are central to the health of the banking system: "The agency believes these measures continue to strengthen bank balance sheets and create buffers in the event of a house-price correction. The asset-quality of the major banks' residential-mortgage portfolios should continue to perform strongly in the absence of interest-rate and unemployment-rate increases. The major banks' serviceability assessment incorporates buffers over current mortgage-rates, ensuring borrowers' ability to repay their loans in a higher interest-rate environment."

According to the latest KPMG Financial Institutions Performance Survey, New Zealand's banks continue to increase their profit margins. $1.2 billion of profit was recorded in the first three months of 2016, with the big four banks' collective earnings up 8 percent on the previous quarter. ANZ's profits were up $69 million to $416m, BNZ's profits increased $67m to $259m, and net profits for Westpac, ASB/CBA, and Kiwibank were slightly down but still near record levels. According to Fitch, "We expect the major banks' profitability to remain stronger than their international peers, although profit generation is likely to be weaker as asset competition is expected to shift to deposits in light of the banks' preparations of the introduction of the net stable funding ratio in early 2018."

Other ratings agencies have not been as positive, however, with Moody's recently downgrading the credit rating of New Zealand's big four banks from stable to negative. While Moody's did affirm the Aa3 long-term senior unsecured debt ratings of ANZ, ASB, BNZ, and Westpac, it also recognised rising household debt levels, a stressed dairy sector, and weaker economic growth: "Moody's expects credit conditions for the banks to weaken as credit growth and household leverage continue to rise, increasing sensitivity to shocks, and against a backdrop of weaker economic growth and rising stress in the dairy sector."

Image Source: Heath Johnson /