KPMG’s Financial Institutions Performance Survey (FIPS) reports have provided insights into New Zealand’s financial services sector for over 30 years. Each edition presents industry commentary and analysis on the performance of New Zealand registered banks, together with a range of topical articles from industry experts, regulators and our own business leaders.
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Results for the year
2021 shows mixed results as New Zealand businesses navigate the new-normal of operating in a Covid-19 environment. Notably, the sector has experienced lending growth of less than 1% - the lowest seen since 2010 in the aftermath of the GFC.
The Survey also reports decreases in both net interest income and non-interest income, down 8.27% and 10.86% respectively, and a 5.69% reduction in interest margins of 66bps, the lowest seen in the Non-bank Survey’s 11-year history. Average funding costs also decreased, down 2.18%, or 115bps.
The sector also experienced a 10% ($97m) drop in operating expenses.
Impaired asset expense has also decreased, dropping 34.14% ($59m) in 2021 after the 41.51% increase in impaired asset expense in 2020. The economic uncertainty surrounding the Covid-19 pandemic and industry concerns over increased risk of future default has subsided significantly this year, leading to a decline in impairment provisions and impairment expenses in 2021. Impaired asset expense as a proportion of gross loans and advances (GLA) has, understandably, decreased considerably from the height of provision of 1.22% in 2020, down 42bps to 0.8%.
These conflicting impacts combined to deliver a 3.24% overall increase in net profit after tax (NPAT).
The unintended consequences of CCCFA
While the Credit Contracts and Consumer Finance Act (CCCFA) regulations are based in sound logic of ensuring responsible, integrity-driven lending, Survey participants foresee a number of unintended consequences, such as higher costs to the lending process which will ultimately be built into interest rates, an increase in loan declines by 20-25%, and an increase in loan approval times by 25-50%.
As a result, CCCFA may also restrict lending at the time when New Zealand businesses and consumers generally need funding to assist the move out of lockdown.
From eliminating to living with Covid-19
A prominent and recurring discussion point across survey participants was around the uncertainty of New Zealand’s path out of Covid-19 restrictions and how we can deal with Covid-19 on an ongoing basis.
Real concern was expressed about entering the traffic light system on 3 December leaving just 22 days for the economy to get moving before the holiday period. The question many ask is whether these businesses will be able to get up and running again to be in a position to recoup the losses from being locked down for significant periods of time
Non-bank Financial Institutions Performance Survey 2021
This webinar releases the financial performance for the sector, and includes a panel of sector experts discussing the key trends, issues and challenges the sector has faced and will continue to face.
