Good times ahead? Don't bank on it, says NAB

The BNZ will be staying in NAB's stable.

SYDNEY - The National Bank of Australia intends hanging on to the Bank of New Zealand in spite of a gloomy Kiwi economic outlook and predicted bloodletting in the banking market.

NAB chief executive John Stewart yesterday predicted a "shakeout" in the next few years but said the NAB was happy to "hold on" to the BNZ.

"I think New Zealand is going to be a difficult market," he told a briefing on the BNZ.

"But ... while it won't be easy, we believe we can get the sorts of returns for our shareholders that we want to get from New Zealand."

Stewart said he was not "a seller" of New Zealand. "We have got a good business there. It will give us the returns we want."

Asked by one analyst whether there would be any likely buyers if the BNZ was put up for sale, Stewart said it was not a likely scenario.

"It's a fair point. The last time a bank was put for sale there, there was only one buyer."

BNZ chief executive Peter Thodey said there was about to be a major battle for market share among New Zealand banks. "With five major banks and four million people it is already an intensely competitive market," he said. "We believe a market share battle is inevitable. In fact, it is going on today but it will get worse.

"Four million people and lower systemic growth don't provide a lot of capacity for the number of new entrants plus the incumbents."

Thodey said the BNZ was in a strong position, having turned around its customer service performance and was second in terms of lending assets. But the coming years would be tough for the economy.

"We are looking at an economic outlook of about 1.2 to 2 per cent [GDP growth] over the next two to three years. That is below our major trading partners and we are reverting to our long-term trend of underperformance."

The BNZ was concerned about inflation, with compliance costs, skills shortages, the rising cost of imports and energy demands all possible triggers.

Other worries included the current account deficit, the low rate of household savings and the high level of household debt.

Positive factors included the fall in the exchange rate, although it expected continued weakness in the dollar, and a stable outlook for commodity prices.

- NZPA