New Zealand's mostly Australian-owned banks, which all reported very strong earnings over 2011-12, are not as profitable as they appear from a return-on-equity perspective, the NZ Bankers Association said.

The association said independent analysis undertaken by Massey University showed that retail banks' average return on equity over the last five years fell in the middle of the range compared to NZX listed companies with a minimum market capitalisation of $100 million over the same period.

"We wanted some analysis which put bank profitability in the context of other New Zealand businesses because there are a lot of views on bank profitability which we felt were overstated," said the association's chief executive, Kirk Hope, said.

Average bank returns on equity from 2008 to 2012 ranged from 7.5 per cent to 16.3 per cent, well below the top average return on equity of 31.7 per cent.


The analysis showed that banks fell in the middle of the range of profits compared to NZX listed businesses, Hope said.

Standard and Poor's said last week that the banks enjoyed a strong year but that the current year could turn out to be more challenging, with low credit growth expected to limit profit growth in the medium term.

Although bank profitability had benefited recently from some growth in net interest margins and lower loan loss provisioning, competition was expected to escalate as banks compete for a smaller pool of available business, the ratings agency said.

New Zealand's financial system is dominated by the big four Australia-owned major banks ANZ, Westpac, National Australia Bank, and Commonwealth Bank of Australia, which together account for 91 per cent of total assets of all the incorporated banks.

We are hosting a live chat tomorrow at noon with Kirk Hope, chief executive of the NZ Bankers' Associaton.
Set a reminder or send in a question for Kirk to
answer here.