KEY POINTS:
KPMG says the banking industry is undergoing a paradigm shift. For the first part of this decade, right up until July last year, the world was, as the business media continually reported, "awash with money looking for a home".
A tiny fraction of that, but a huge amount
by local standards, settled here in New Zealand. The majority of it was imported by the major banks and lent out mostly to home buyers thereby driving a period of house price inflation.
Banks were practically falling over each other to lend money, in what became known as the "mortgage war".
With all this cash being thrown around, over the two years to 2007 total assets of New Zealand incorporated banks, which are basically the retail names we are all familiar with, rose from $220.54 billion to $290.22 billion and combined net profit was up from $2.67 billion to $3.11 billion.
However the sub-prime crisis, initially regarded as a speed bump for the global banking industry, has turned out to be something more enduring, and those with cash are being a lot more careful with it.
That means the local banks are paying more for money and so in turn will their customers.
As KPMG warned yesterday, the banks will be less willing to raise as much cash at higher prices and there just won't be as much around for business investment.
It's safe to say that the incredible growth enjoyed by local banks will be far more muted for the next year or two.
There will be exceptions to this. Kiwibank, the fastest growing locally incorporated bank last year with a 54.5 per cent increase in total assets, will probably continue to exploit nationalist sentiment and its big retail deposit base.
But let's put the local contender's position in perspective. Even after such growth its assets of $4.75 billion give it a 1.6 per cent share of the overall total.
Meanwhile, as KPMG's Andrew Dinsdale said yesterday, banks can and do fail from time to time. New Zealand's local banks, however, are well capitalised and are nowhere near as reliant on wholesale markets as Britain's Northern Rock was.
The fantastic profitability they have enjoyed in the last decade should have given them a layer of fat to live off during leaner times ahead.