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FIPS Financial Institutions Performance Survey Review of 2016 February 2017 kpmg.com/nz Contents 2 The Survey 88 Non-banks industry overview 4 A KPMG view from the editor 90 Non-banks – Industry overview 8 Banking industry overview 98 Looking back at the non-bank sector 10 Registered banks – Industry overview 100 Non-banks – Timeline of events 22 Registered banks – Timeline of events 102 Financial Services Federation 26 Registered banks – Sector performance 104 Non-banks – Sector performance 38 Registered banks – Analysis of annual results 112 Where is P2P lending at today? 46 Major banks – Quarterly analysis 114 Non-banks – Analysis of annual results 50 Review of bank directors’ attestation regime 118 Cyber security: It’s not just about technology 52 Sustainable performance requires good conduct 124 Registered banks – ownership and credit ratings 54 More legislation? Success is all about 125 Non-banks – Credit ratings customer-centricity 126 Non-banks – Ownership 58 Transforming the agri-food industry 127 Descriptions of the credit rating grades 62 Customers drive banking innovation 128 Definitions 64 Get ready to embrace digital disruption 129 Endnotes 66 Blockchain – time to understand the value 132 KPMG’s Financial Services Team 70 IFRS 9 – Rising to the challenge 134 Contact us 74 Generating a leading house price index 78 Productivity is a strategic imperative for New Zealand banks 80 What FATCA, GATCA and other tax changes will mean 82 Banking industry forecasts 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 2016 The Survey The KPMG Financial TABLE 1: MOVEMENTS Institutions Performance Who’s out Who’s in Survey (FIPS) report of 2016 Banks: 251 — Nil — Nil th represents the 30 year — GE Capital — EFN (New Zealand) Limited KPMG has provided in-depth Non-banks: 23 — The Warehouse Financial — LeasePlan (New Zealand) insights into New Zealand’s Services Limited banking and finance sector. In this 30th edition publication Bank of China) are still in the early (New Zealand), formerly part of GE we will be presenting industry stages of their development, we may Capital’s Equipment Finance and commentary and analysis continue to see further accelerated Fleet Solutions Division, is one of the on the performance of the growth and it may be some time entities that acquired a portion of GE before this begins to normalise. Capital’s loan book and because of New Zealand registered Of particular future interest for these that, we welcome EFN (New Zealand) banks and non-bank financial entities will be the impact of the dual to this year’s publication as they branch, subsidiary registration recently have met the $75 million threshold institutions, together with a announced by the RBNZ. for inclusion. The remainder of GE range of topical articles from Capital’s loan book was acquired Follow the announcement of its by two large entities, whom we other key stakeholders such withdrawal from New Zealand, hope to welcome into the survey Deutsche Bank has relinquished its as industry experts, regulators from next year onwards when banking license to the RBNZ in August and our own business they will by virtue of being large for of this year. However, this year will two years be required to file their line leaders. be the last year of its inclusion as part financial statements. of our banking sector analysis, with 31 December 2015 being the last The Warehouse Group Limited’s The survey covers registered bank annual financial statements available acquisition of The Warehouse Financial and non-bank entities with balance for Deutsche Bank. Services Limited from Westpac, has meant that the financial performance dates between 1 October 2015 and For the non-bank sector participants, of Warehouse Financial Services 30 September 2016. As a result, the threshold for inclusion in this will now be consolidated under The entities with the balance date survey has remained unchanged Warehouse Group’s 31 July 2016 year- of 31 December will have their from the prior year at total assets end financial statements. Hence, The 31 December 2015 financial results of $75 million. In total, the non- Warehouse Financial Services Limited included in this year’s survey as bank sector comprises of 23 survey will no longer be included in the survey their most recent results. Those participants that are involved in an due to the absence of publicly available affected include Bank of China, China array of activities, including equipment standalone financial statements. Construction Bank, Citibank, Deutsche financing, vehicle financing, consumer Bank, Industrial and Commercial loans, working capital loans, and The sale of Fisher & Paykel Finance Bank of China, JP Morgan Chase residential mortgages. to FlexiGroup (New Zealand) Limited Bank, Kookmin Bank, Rabobank has not affected the way Fisher & Following developments from and The Hongkong and Shanghai Paykel is presented in the survey this the previous year, we see the Banking Corporation. year, however it will have an impact departure of GE Capital and The next year. As this year marks the first full year of Warehouse Financial Services from financial reporting from Bank of China this year’s survey. Having sold off In addition, we also welcome and China Construction Bank, we hope its New Zealand operations in 2015, LeasePlan New Zealand Limited the comparative figures presented GE Capital has since transferred the to this year’s publication. We have will help develop a better sense of the majority of its loan books to its new included all prior year comparatives potential size of these two growing owners, and as such do not have for LeasePlan to ensure consistency banks. However, as the Chinese banks any loans to report on at its most and comparability between (including Industrial and Commercial recent year end fiscal date. EFN reporting periods. © 2017 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 2016 | KPMG | 3 As with all previous FIPS Surveys, the information used in compiling our analysis is extracted from publicly available annual reports and disclosure statements for each organisation, with the exception of certain information provided by the survey participants. A limited number of participants provide us with audited financial statements that might not otherwise be publicly available. We wish to thank the survey participants for their valued contribution, both for the additional information provided and for the time made available to meet and discuss the industry issues with us. Without these valuable meetings with Executives the document would lack a lot of the colour and deep insights that it does. Massey University continues to be a key contributor to the compilation of this publication, assisting with the data collection, as well as drafting the banks’ profit forecasting section of this survey. We thank them for their continued contribution. External contributors continue to play a vital role in our publication, providing insight on key issues and developments that we might not otherwise have. We would like acknowledge the contributors from The Reserve Bank of New Zealand (RBNZ), the Financial Markets Authority (FMA), New Zealand Bankers’ Association (NZBA), The Financial Services Federation and the Real Estate Institute of New Zealand (REINZ), for their exceptional contribution towards the compilation of this publication. We have supplemented their external thought leadership commentary on the industry with some of KPMG’s own business line thought leadership. We trust you find the content of this survey of interest. © 2017 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. 4 | KPMG | FIPS 2016 A KPMG view from the editor As I sit down to write the At the beginning of the year, funding channels started to tighten and become editor’s letter, I look back over more expensive. This was followed by 2016 and what has truly been a series of successive slumps in dairy a year of volatility and change prices at the Global Dairy Trade auction. Fortunately, later in the year, global dairy that perhaps offers a window prices have rebounded. into a future where increased On the geo-political front, there was volatility and pace of change turmoil all over the world as ruling will be the norm. governments received clear messages from citizens that they were not being listened to. First there was Brexit and then late in the year, the election as US president of a billionaire businessman, talk show/reality TV host who prefers rhetoric over facts and John Kensington uses Instagram and Twitter to espouse Partner – Audit his policy. In New Zealand our own Head of Banking and Finance Prime Minister resigned, a new KPMG Prime Minister was appointed and subsequently an election date was set for 20 September 2017. John has been with KPMG’s Financial While all of this was going on, funding Services audit team for 30-plus years, was becoming more difficult and more 21 of these as a partner working with expensive to obtain and the fourth a wide range of financial services industrial revolution was impacting audit clients, specialising in banks and us faster than ever. finance companies. Despite all of this, the New Zealand John has a wealth of experience in economy has remained strong. auditing and accounting for banking Immigration, tourism, and the non-dairy products and services including primary sector have all performed well.

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