Deposit war keeps bank margins under pressure
The deposit war amongst the banks over the past year has kept their profit margins under pressure according to reports by the central bank and auditor KPMG.
Thursday, November 12th 2009, 10:55PM
by Paul McBeth
The Reserve Bank found competition for domestic funds had had prevented the country's banks from ratcheting up their profit margins in spite of falling wholesale costs. Margins were "fairly steady" at around 2.1%, according to the central bank's Financial Stability report.
KPMG's quarterly financial institutions performance survey recorded similar findings, noting net interest margins improved to an average 2.07% in the June quarter from the period prior.
"The cost of funds has increased faster than the associated lending income reflecting the tough competition in the market for deposits," the KPMG report said.
In the past few weeks, competition for deposits has been called "ridiculous" and a threat to sector by ANZ group chief executive Mike Smith, while Commonwealth Bank of Australia blamed it for its soft profit margin in New Zealand.
The KPMG survey found ASB's margins rose the most in the period, climbing 23 basis points, while Kiwibank's increased 19 basis points. Bank of New Zealand increased its margin by 11 basis points, while Westpac upped it by 6 points and ANZ National's edged higher by 1 point.
Paul is a staff writer for Good Returns based in Wellington.
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