Prudent management of the public purse is essential to keeping down the cost of credit said the New Zealand Bankers’ Association today in response to Budget 2012.
The Association supported moves to ensure borrowing costs for the government, householders and business owners do not increase unnecessarily. Initiatives that kept the NZ dollar at a realistic value were also important. A lower dollar made New Zealand more globally competitive and supported exports, including the important agricultural sector.
“Balancing the books and moving back to surplus will help our sovereign credit rating, which in turn will keep interest rates down for New Zealand households,” said New Zealand Bankers’ Association chief executive Kirk Hope.
“The credit rating agencies are paying close attention to us. If our credit rating goes down, our interest rates go up. A credit rating downgrade makes us look like a riskier bet to the funders, so it costs us more to source funds.
“The government is in line with households who are paying down their debt. It’s about living within our means. This responsible approach will keep us in good stead with the credit rating agencies.”
The Association was disappointed the Budget did not include more initiatives to lift New Zealand savings.
“We need some good policy thinking around how to improve our savings levels. This is important as it will reduce our reliance on foreign borrowing and provide us with a wider range of options and opportunities for future economic growth,” said Hope.
Bank lobby group, the New Zealand Banker’s Association (NZBA), says cuts in fixed interest rates highlight the level of “intense competition” in the New Zealand banking sector.
Recent cuts in fixed interest rates highlight the level of intense competition in the New Zealand banking sector. This is good news for borrowers, but will impact on returns for bank depositors.
Interest rates are at historically low levels. This is due to a drop in wholesale interest rates as a result of ongoing uncertainty in the global economy, driven largely by volatility in Europe. “Consumers are getting the benefit of this window of opportunity,” said New Zealand Bankers’ Association chief executive Kirk Hope.
“On the flipside it’s important to remember that cuts in lending rates also mean a decrease in savings interest rates. This will affect depositors who rely on the interest returns their investments earn. At a national level, this could impact on our private savings which have increased through the economic recovery.
“Balancing the needs and aspirations of borrowers and depositors, within the context of global uncertainty and a very competitive market, provides plenty of challenges for our banks. Domestic deposits are needed to ensure ongoing lending, which is vital for economic growth.
“Added to those challenges are increased regulatory demands such as the Reserve Bank’s core funding ratio and higher Basel III capital standards which make bank profitability even more important,” said Hope.
In its May 2012 Financial Stability Report, the Reserve Bank of New Zealand noted the banks were performing well, and that competition was set to increase as banks respond to lower credit demand. This will likely result in downward pressure on bank net interest margins, which are already lower than pre-global financial crisis levels.
“Banks need to retain an interest margin to continue operating and investing in New Zealand. They are major businesses which make a huge direct contribution to our economy,” said Hope.
In 2011 the New Zealand banking industry’s operating expenses totalled over $4 billion. This includes paying New Zealand businesses for goods and services, sponsorships, contributions to community and voluntary programmes, and financial literacy initiatives. It also includes salaries paid to over 25,000 people who are employed by banks in New Zealand.
Kirk Hope, CEO of bank lobby group the New Zealand Banker’s Association, said it was positive the timeframe for OBR’s implementation had been pushed back but it was still too tight.
New Zealand Bankers Association CEO Kirk Hope told interest.co.nz that there was a high level of competition between New Zealand banks. Banks in New Zealand also contributed around NZ$6 billion to the economy each year via their own operating expenses – mostly wages to over 25,000 employees – and taxes paid in New Zealand.
Commerce Committee
New Zealand financial institutions are fighting a United States tax that threatens to saddle them with millions of dollars in regulation costs and could end up costing Kiwi consumers. Outright opposition was not an option because non-compliant institutions would be slapped with hefty withholding penalties. It was “a very likely outcome” that those increased regulatory costs would then be passed on to ordinary consumers.
United States Internal Revenue Service and Treasury
“Banks are certainly standing behind their customers,” says Kirk Hope of the New Zealand Bankers Association. “No customers will be adversely affected as a result of this payments issue.”
The New Zealand Bankers’ Association today welcomed KPMG’s annual Financial Institutions Performance Survey (FIPS). In its 25th year, the 2011 survey shows New Zealand has a strong, stable and highly competitive banking sector that continues to serve New Zealand businesses and consumers very well in a globally uncertain environment.
“Our banks are well placed to face the coming challenges, which include higher cost of funds, increased regulatory costs, and continued low credit growth,” said New Zealand Bankers’ Association chief executive Kirk Hope.
Increases in bank profits for 2011 were largely driven by a reduction in bad and doubtful debts, a modest increase in margins for the full year, and a strong focus on cost management. While provisioning has reduced year on year from $812.7 million in 2010, to $548.5 million in 2011, business challenges, such as cost of funds, low credit growth and competition, may see pressure on margins in the coming year.
The regulatory burden is also increasing; for example, achieving compliance with the Reserve Bank’s prudential requirements including accelerated timeframes for new capital standards, Open Bank Resolution, and meeting new United States tax obligations. “Changes to the regulatory landscape have the potential to increase the costs for customers in 2012 and beyond. Any increased costs must be justified by the benefits of regulatory change,” said Hope.
“Let’s not forget the contribution banks make to our economy. The banking industry spent $4.46 billion in New Zealand in 2011. This includes payments to New Zealand businesses that provide goods and services to banks, contributions to community and voluntary programmes, and financial literacy initiatives. It also includes salaries paid to over 25,000 people who are employed by banks in New Zealand,” said Hope.