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Higher interest margins drive surge in New Zealand bank profits: PwC

02-10-2012 16:04 BJT

WELLINGTON, Feb. 10 (Xinhua) -- New Zealand's five main commercial banks saw combined core earnings rise by 25 percent in the second half of last year compared with the previous six months, PricewaterhouseCoopers (PwC) announced Friday.

The four Australian-owned banks -- ANZ National, ASB, Bank of New Zealand, and Westpac-- and the government-owned Kiwibank reported total core earnings of 2.8 billion NZ dollars (2.33 billion U.S. dollars) in the second half, up from 2.3 billion NZ dollars in the first half, according to PwC's latest New Zealand Banking Perspectives analysis.

This rise was driven by increasing net interest income, growth in other operating income and a modest reduction in operating expenses, although bad debt costs were up by 24 million NZ dollars, said the analysis.

Overall, profits before tax increased to 2.4 billion NZ dollars, up from 1.9 billion NZ dollars in the first half.

"The uplift in the banks' earnings for the second half of their 2011 financial years has come off the back of a solid all round performance across the majority of the key profitability drivers, which reverses the trend seen six months ago, when there was limited movements across these drivers of profitability," PwC financial services partner Sam Shuttleworth said in a statement.

Net interest income rose by 7 percent to 3.6 billion NZ dollars in the second half, mainly from improving net interest margins, rather than as a result of credit growth because total lending was relatively static at 276.3 billion NZ dollars, said the statement.

The average reported net interest margin -- the difference between interest income and interest paid to lenders-- was up by four basis points to 2.27 percent, but still below the major Australian banks' average net interest margin of 2.29 percent for the same period.

Shuttleworth said the European sovereign debt crisis could have an major impact on the banks' net interest income levels given the cost of international wholesale funding was likely to rise.

"On a positive note and putting aside pricing pressures, the major banks in New Zealand have largely self-funded themselves since the second half of 2009. The banks have clearly shown they can attract retail funding to cover new lending," he added.

"Efficiency strategies should allow banks to maintain their profit margins given limited credit growth and pressure on funding costs doesn't appear to be abating."

The FIRST Union, which represents finance industry workers, said the report showed New Zealanders needed to start asking if their country was benefiting from "huge annual leaps in bank profits."

FIRST Union national organizer Bella Pardoe said the billions made were not invested in creating jobs or improving customer service.

"Net interest rate margins have increased by 23 percent since 2007. Customers are paying more than they should have to keep inflating these profit levels," said Pardoe in a statement.

"Big bank profits are seen as a good news story. CEOs with multi-million-dollar salaries and (Australian) shareholders are cashing in. But where is the good news for New Zealand staff, customers, and communities?" said Pardoe.

Editor:Wang Lingfei |Source: Xinhua

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