Big banks' Kiwi blues

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This was published 14 years ago

Big banks' Kiwi blues

By Eric Johnston

While the major banks appear to be navigating the local downturn well, they still face plenty of headaches across the Tasman.

The outlook for the New Zealand market remains tough, which is still likely to weigh on the big four. ANZ and National Australia Bank rank as the biggest lenders in that market.

In its latest assessment of the New Zealand, ratings agency Moody’s said the outlook is negative, with rising unemployment and weaker commodity prices likely to causing further stress on bad debts.

The four largest New Zealand banks are each owned by the major Australian banks and collectively account for around 93 per cent of the nation’s bank assets.

Unemployment is expected to rise from its current rate of 6 per cent to the New Zealand government’s forecast peak of 7.5 per cent and this will likely add to mortgage borrower stress, Moody’s said in its assessment.

Soft commodity prices will impact exports, and much lower dairy prices for 2009-10 - compared to the past two years - will hurt dairy farmers, resulting in potential cash flow problems, it said.

Commonwealth Bank gave an insight into the health of the New Zealand banking sector this week as its Auckland-based ASB unit reported a 17.5 per cent drop in annual cash earnings to $NZ425 million ($342 million).

ASB was hit a sharp jump in bad debts which offset the growth in lending and trading income. The accounts show its parent also put about $NZ275 million worth of fresh capital into ASB’s balance sheet to help it absorb the rising tide of bad debts.

The result contrasted with CBA’s broader result where cash profit fell 7 per cent to $4.42 billion for the year to end June. While CBA said it was too early to call an end to the downturn, this investors were buoyed the the bank’s lower-than-feared bad debts charge.

Even after five consecutive quarters of negative growth from New Zealand, it’s not all bad news.

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The dairy industry has seen some recovery in prices, although they remain well off their peak from late 2007. Elsewhere, housing prices have begun to stabilise as fixed mortgaged are starting to roll into lower pricing, this is providing some relief on mortgage stress.

Moody’s said the banking system remains sound, helped by support from the Reserve Bank of New Zealand.

At the same time the New Zealand Government has provided support through measures such as the retail deposit guarantee scheme and wholesale funding guarantee facility. The New Zealand banks also have strong backing from their Australian parents.


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