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Financial Institutions Performance Survey Review of 2015

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Financial Institutions Performance Survey Review of 2015 FIPS FINANCIAL INSTITUTIONS PERFORMANCE SURVEY REVIEW OF 2015 THE CONTINUED STRENGTH OF THE BANKING SECTOR DRIVES THE REST OF THE NEW ZEALAND ECONOMY Contents 2 The Survey 4 A KPMG view from the editor 6 BANKING INDUSTRY OVERVIEW 8 Registered banks – Industry overview 22 Registered banks – Timeline of events 26 Registered banks – Sector performance 42 Registered banks – Analysis of annual results 48 Major banks – Quarterly analysis 52 Moving beyond disclosure to put conduct at the top of your priorities 54 Conduct and culture: at home and away 58 Resilient banks, a resilient economy 60 Low interest rate environment – an earnings challenge for Banks in 2016 64 There is no other choice but to invest in the future 68 New Zealand banks must embrace the Fintechs 72 BEPS – latest developments for financial institutions 76 Banking industry forecasts 84 NON-BANKING INDUSTRY OVERVIEW 86 Non-banks – Industry overview 92 Non-banks – Timeline of events 94 Financial Services Federation 98 Non-banks – Sector performance 106 P2P lending 111 Looking back at the non-bank sector 112 Non-banks – Analysis of annual results 116 Tackling cyber threats – three key priorities for financial institutions 120 Registered banks – ownership & credit ratings 121 Non-banks credit ratings 122 Non-banks ownership 122 Descriptions of the credit rating grades 123 Definitions 124 Endnotes 125 KPMG’s Financial Services Team 126 Contact us KPMG’s Financial Services team provides focused and practical audit, tax and advisory services to the insurance, retail banking, corporate and investment banking, and investment management sectors. Our professionals have an in-depth understanding of the key issues facing financial institutions. Our team is led by senior partners with a wealth of client experience and relationships with many of the market players, regulators and leading industry bodies. 2 | KPMG | FIPS 2015 The Survey For the non-bank sector participants, and disclosure statements for each the threshold for inclusion in the organisation, with the exception of Our Financial Institutions survey has remained at total assets of certain information provided by the Performance Survey (FIPS) $75 million. survey participants. A limited number of participants provide us with audited th First Mortgage Trust and Nissan of 2015 marks the 29 year financial statements that might not Financial Services New Zealand Pty otherwise be publicly available. we have provided industry Limited are the latest entities to be commentary and an analysis welcomed into the non-bank sector We wish to thank the survey on the performance of the survey this year. participants for their valued contribution, both for the additional Fisher & Paykel Finance Group New Zealand registered information they provide and for the changed their balance date in 2013 banks and non-bank financial time made available to meet with us to from 31 March to 31 December, which discuss industry issues. institutions together with means the comparatives presented for topical articles from the Fisher & Paykel are for a 9 month period Massey University continues to be a ended 31 December 2013. The sale of stakeholder in the survey, assisting sector’s participants. different businesses of GE Capital that with the data collection and analysis, have occurred during the 2015 year as well as drafting the forecasting have not affected the way these entities section of this survey. We thank them are reported in this year’s survey, as for their continued contribution. the financial statements used for Continuing the theme from last The survey covers balance dates GE Capital are as at 31 December year, we are delighted to again have between 31 October 2014 and 2014. At that time, the entity had commentary from the Financial 30 September 2015. This has once not commenced its sell down. There Markets Authority (FMA) and the again resulted in registered banks will be a significant impact in next New Zealand Bankers’ Association with the balance date of 31 December year’s survey from these disposals. (NZBA). In addition, we welcome having their 31 December 2014 results This year we continue to disclose the contributions in this year’s survey from included in this year’s survey as individual GE entities separately below the Financial Services Federation (FSF). their most recent results. The banks our analysis of financial statements We have supplemented their external affected by this are Bank of China, table for information purposes (see thought leadership commentary with China Construction Bank, Citibank, page 112). Hopefully next year we some of KPMG’s own business line Deutsche Bank, Industrial and will welcome the results of the ’sold thought leadership. We trust you find Commercial Bank of China, JPMorgan entities’ in their new ownership. Chase Bank, Kookmin Bank, Rabobank the content of this survey of interest. and The Hongkong and Shanghai As has been the case with previous If there are any issues or matters Banking Corporation. surveys, all information used in included in the document that you wish compiling our analysis is extracted to discuss in further detail, please do We welcome two new registered from publicly available annual reports not hesitate to contact us. banks to this year’s survey, with China Construction Bank New Zealand Limited obtaining registration on 15 July 2014 and Bank of China TABLE 1: Movements New Zealand Limited obtaining Who’s out Who’s in registration on 21 November 2014. • Bank of China New Zealand Limited Both banks are subsidiaries of their 1 Nil Banks: 25 • China Construction Bank New Zealand Limited much larger parents operating in China which are the second and fourth • First Mortgage Trust largest banks in the world, respectively, Non-banks: 23 Nil • Nissan Financial Services New Zealand Pty based on total assets in 2015. Limited FIPS 2015 | KPMG | 3 4 | KPMG | FIPS 2015 A KPMG view from the editor The banking sector has improved So ‘where to from here’ for the its overall capital adequacy ratio by New Zealand banking sector? At the Each year when I review the 72 basis points (bps) to stand at risk of sounding a little like a stuck performance of the banking 13.16%. The only slight blemish on record, the New Zealand banking the result has been an increase in sector is well-poised to continue sector, there is a recurring the impairment provisioning, but to grow. However it does face theme; banks have made a that represents more of a return some headwinds: to normalisation. record profit, but there remains • The impact of a prolonged lower challenges ahead. And every Why have our banks performed so dairy pay-out is a significant well in challenging global times? The year, the results get stronger. challenge. There is still some answers are many and varied: concern around this, and the • The New Zealand economy never level of debt that the industry has Economic conditions rose to the same dizzy heights as to service. continued to remain positive did some global economies in the • To date, there has been sufficient throughout most of 2015. mid-2000s; so when the global liquidity globally chasing yield to financial crisis (GFC) arrived, it didn’t Up until the final weeks ensure adequate funding. While have so far to fall. the New Zealand banks remain of 2015, when volatility • Post-GFC, the New Zealand banks well above the Reserve Bank of returned to global markets, never found themselves in a New Zealand (RBNZ or Reserve position where they needed to be the New Zealand economy Bank) core funding ratios, they still recapitalised or bailed out. This has are exposed to the global markets had enjoyed a strong ride meant that, as the New Zealand they draw significant funding from. compared to the rest of the economy has recovered more quickly in comparison to foreign • One of the major issues many world. That is not to say that economies, the banks have been at banks will have to face in the it had not faced some issues the forefront of that recovery. current period is the potential around dairy prices, challenges • The Auckland housing market regulatory impact from the Reserve (perhaps slightly artificially) has Bank’s proposed outsourcing rules. in Asian markets (in particular boosted the economy, as has The Reserve Bank is clarifying China), and the impact of the rebuild in Christchurch and its position on outsourcing, and Europe. Our economy’s new development in Auckland. requiring systemically important Throughout this period, banks to bring key operations strong performance has been New Zealand employment levels onshore. The Reserve Bank is more than replicated by the have improved slightly. looking to ensure that it can – if banking sector. This year sees • Our banks have been in a position necessary, in the event of a global or regional issue – control a bank New Zealand banks record a to allow their customers to transact freely. Customers had been able fully onshore. From the banks’ net profit of $5.17 billion based to deposit and borrow from banks, perspective, they will argue that on margin growth of four and engage in trade activities or part of the reason they have been derivative products. so efficient is that they have set up basis points, lending growth global centres of excellence where • During the period post-GFC, there are workforces capable of of 7.11%, and a reduction New Zealand’s regulatory in the operating income to environment has moved or changed providing the labour and expertise operating expense ratio to a very quickly. The banks have proven required. This has allowed them to very adept at implementing new reduce the pricing that is passed on low of 37.32%. regulations and ensuring their to consumers in the local economy. compliance with them. FIPS 2015 | KPMG | 5 No survey of the last five years would 3.
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