A survey by accountancy firm KPMG reveals few problems among New Zealand's major banks, despite Reserve Bank concerns about their lending practices in recent years and a possible slowdown in the housing market.
KPMG's annual survey of banking released today found the industry was "in good shape
to meet any market shock or slowdown".
However it acknowledged Reserve Bank governor Allan Bollard's concerns about the rapid expansion of mortgage credit at low margins and the impact a correction in the housing market might have on the sector given housing loans make up the majority of the major banks' business.
However the survey indicated "the banks haven't been guilty of putting all their eggs in the housing market," according to KPMG's Godfrey Boyce.
"They've recorded broad based growth across most lending categories, including agricultural and business lending."
Registered banks' total assets grew by over 15 per cent during 2006 to more than $275 billion. Mortgage lending increased by $15.3 billion to $127.7 billion.
KPMG found mortgage lending made up 54 per cent of banks' total lending, a figure that had remained steady for some time.
Furthermore, "banks have not experienced credit quality issues - in fact, quite the reverse".
"Bad debts and delinquent loans are at their lowest level in the last nine years," said Boyce.
Nevertheless another of the Reserve Bank's concerns, the decline in margins or the amount banks earn on loans was borne out by the survey.
Boyce said margins across the sector had contracted by 17 basis points to 2.35 per cent.
"The banks have become accustomed to loan growth more than offsetting the concessions they've made on interest rate margins as they've fought the mortgage war.
In spite of a steady rise in underlying profitability over the past ten years, they can't assume it's going to continue indefinitely."
The survey also found that the total net profit of all registered banks rose topped $3 billion for the first time, with the four major banks, ANZ/National, Westpac, ASB Bank and Bank of New Zealand contributing almost 90 per cent of that.
