Banks' earning likely to take hit

Double-digit earnings growth will be a lot harder for banks. Photo / APN

'More normal' levels expected because of tighter regulation and cautious approach.

The trend of strong earnings growth for most of the main banks operating in New Zealand is nearing its end, consultants PwC say.

New Zealand's mostly Australian-owned banks have drawn flak in recent years for reporting big increases in earnings while other parts of the economy have struggled, but PwC partner and banking specialist Sam Shuttleworth said those those days could be limited. "Double-digit earnings growth will be a lot harder in light of the low-growth environment that we are in, and the highly competitive market place,' he said.

He said it appeared earnings would return to "more normal" levels, due in part to tighter regulation and to banks not wanting to fall into the same lending traps as their Northern Hemisphere counterparts.

Shuttleworth, in releasing PwC's latest report - New Zealand Banking Perspectives - said the local banking sector was in good shape, with capital adequacy continuing to improve.

PwC's report analyses the financial performance of the Australian-owned operations of ANZ Bank, Westpac, National Australia Bank (BNZ) and Commonwealth Bank of Australia (CBA), and the New Zealand Government-owned Kiwibank.

PwC said the banks' combined pre-tax profits in the second six months of their 2012 financial years were $2.17 billion, down from $2.44 billion reported in the first six months.

The five banks posted the biggest growth on their lending books in the second half since 2009.

Shuttleworth said as the banks compete to attract borrowers, they need to resist the temptation of reducing their interest margins too far if we wish the New Zealand banking system to retain its global reputation as a safe banking environment.