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FIPS Financial Institutions Performance Survey Review of 2016 February 2017 kpmg.com/nz Contents 2 The Survey 80 Non-banks industry overview KPMG’s Financial Services team provides 4 A KPMG view from the editor 82 Non-banks – Industry overview 8 Banking industry overview 90 Looking back at the non-bank sector focused and practical audit, tax and advisory 10 Registered banks – Industry overview 92 Non-banks – Timeline of events 20 Registered banks – Timeline of events 94 Financial Services Federation services to the insurance, retail banking, 24 Registered banks – Sector performance 96 Non-banks – Sector performance 34 Registered banks – Analysis of annual results 102 Where is P2P lending at today? corporate and investment banking, and 42 Major banks – Quarterly analysis 104 Non-banks – Analysis of annual results investment management sectors. 46 Review of bank directors’ attestation regime 108 Cyber security: It’s not just about technology 48 Sustainable performance requires good conduct 114 Registered banks – ownership and credit ratings 50 More legislation? Success is all about 115 Non-banks – Credit ratings Our professionals have an in-depth customer-centricity 116 Non-banks – Ownership understanding of the key issues 54 Transforming the agri-food industry 117 Descriptions of the credit rating grades 58 Customers drive banking innovation 118 Definitions facing financial institutions. 60 Get ready to embrace digital disruption 119 KPMG’s Financial Services Team 62 Blockchain – time to understand the value 120 Contact us 66 IFRS 9 – Rising to the challenge Our team is led by senior partners with a 70 Generating a leading house price index 72 Productivity is a strategic imperative for wealth of client experience and relationships New Zealand banks 74 What FATCA, GATCA and other tax changes will mean with many of the market players, regulators 76 Banking industry forecasts and leading industry bodies. 2 | KPMG | FIPS 2016 FIPS 2016 | KPMG | 3 The Survey As with all previous FIPS Surveys, The KPMG Financial TABLE 1: MOVEMENTS the information used in compiling our Institutions Performance Who’s out Who’s in analysis is extracted from publicly Survey (FIPS) report of 2016 Banks: 251 — Nil — Nil available annual reports and disclosure represents the 30th year statements for each organisation, with — GE Capital — EFN (New Zealand) Limited the exception of certain information KPMG has provided in-depth Non-banks: 23 — The Warehouse Financial — LeasePlan (New Zealand) provided by the survey participants. insights into New Zealand’s Services Limited A limited number of participants banking and finance sector. provide us with audited financial th statements that might not otherwise In this 30 edition publication be publicly available. we will be presenting industry Bank of China) are still in the early EFN (New Zealand), formerly part of stages of their development, we may GE Capital’s Equipment Finance and We wish to thank the survey commentary and analysis continue to see further accelerated Fleet Solutions Division, is one of the participants for their valued on the performance of the growth and it may be some time entities that acquired a portion of GE contribution, both for the additional New Zealand registered before this begins to normalise. Capital’s loan book and because of information provided and for the Of particular future interest for these that, we welcome EFN (New Zealand) time made available to meet and banks and non-bank financial entities will be the impact of the dual to this year’s publication as they discuss the industry issues with us. institutions, together with a branch, subsidiary registration recently have met the $75 million threshold Without these valuable meetings with Executives the document range of topical articles from announced by the RBNZ. for inclusion. The remainder of GE Capital’s loan book was acquired would lack a lot of the colour and Follow the announcement of its other key stakeholders such by two large entities, whom we deep insights that it does. Massey withdrawal from New Zealand, hope to welcome into the survey University continues to be a key as industry experts, regulators Deutsche Bank has relinquished its from next year onwards when contributor to the compilation of this and our own business banking license to the RBNZ in August they will by virtue of being large for publication, assisting with the data of this year. However, this year will line leaders. two years be required to file their collection, as well as drafting the be the last year of its inclusion as part financial statements. banks’ profit forecasting section of of our banking sector analysis, with this survey. We thank them for their 31 December 2015 being the last The Warehouse Group Limited’s continued contribution. 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 External contributors continue to dates between 1 October 2015 and meant that the financial performance play a vital role in our publication, For the non-bank sector participants, 30 September 2016. As a result, of Warehouse Financial Services providing insight on key issues the threshold for inclusion in this entities with the balance date will now be consolidated under The and developments that we might survey has remained unchanged of 31 December will have their Warehouse Group’s 31 July 2016 year- not otherwise have. We would like from the prior year at total assets 31 December 2015 financial results end financial statements. Hence, The acknowledge the contributors from The of $75 million. In total, the non- included in this year’s survey as Warehouse Financial Services Limited Reserve Bank of New Zealand (RBNZ), bank sector comprises of 23 survey their most recent results. Those will no longer be included in the survey the Financial Markets Authority (FMA), participants that are involved in an affected include Bank of China, China due to the absence of publicly available New Zealand Bankers’ Association array of activities, including equipment Construction Bank, Citibank, Deutsche standalone financial statements. (NZBA), The Financial Services Bank, Industrial and Commercial financing, vehicle financing, consumer Federation and the Real Estate Bank of China, JP Morgan Chase loans, working capital loans, and The sale of Fisher & Paykel Finance Institute of New Zealand (REINZ), for Bank, Kookmin Bank, Rabobank residential mortgages. to FlexiGroup (New Zealand) Limited their exceptional contribution towards has not affected the way Fisher & and The Hongkong and Shanghai Following developments from the compilation of this publication. Paykel is presented in the survey this Banking Corporation. the previous year, we see the year, however it will have an impact We have supplemented their external departure of GE Capital and The As this year marks the first full year of next year. thought leadership commentary on financial reporting from Bank of China Warehouse Financial Services from the industry with some of KPMG’s and China Construction Bank, we hope this year’s survey. Having sold off In addition, we also welcome own business line thought leadership. the comparative figures presented its New Zealand operations in 2015, LeasePlan New Zealand Limited We trust you find the content of this will help develop a better sense of the GE Capital has since transferred to this year’s publication. We have survey of interest. potential size of these two growing the majority of its loan books to its included all prior year comparatives banks. However, as the Chinese banks new owners, and as such do not for LeasePlan to ensure consistency (including Industrial and Commercial have any loans to report on at its and comparability between most recent year end fiscal date. 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. © 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 FIPS 2016 | KPMG | 5 A KPMG view from the editor As I sit down to write the At the beginning of the year, funding The key takeaways from the 2016 year — One factor we have seen near This was not seen as sustainable channels started to tighten and become that are highlighted by the survey are the end of the 2016 and early and was in part behind banks’ editor’s letter, I look back over more expensive. This was followed by as follows: 2017 is the beginning of what actions to slow lending. This in 2016 and what has truly been a series of successive slumps in dairy some wrongly refer to as ’credit turn led to an increased focus — One thing that continues to prices at the Global Dairy Trade auction. rationing’. There has been a clear on local deposits and increased a year of volatility and change underpin the banking sector’s Fortunately, later in the year, global dairy message from the major banks competition in that part of performance is the strength of its that perhaps offers a window prices have rebounded. that New Zealanders cannot the market. balance sheet. into a future where increased expect lending rates to continue — One area that always provides On the geo-political front, there was — This year is the first year for to fall nor to borrow at the same animated discussion is regulation. volatility and pace of change turmoil all over the world as ruling seven years that we have seen exuberant levels. A combination of The current period has been no will be the norm. governments received clear messages a reduction in sector profitability increased funding costs, regulation exception.

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