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NZ banks post second-half loss amid debt write-offs, tax ruling: PwC

Wednesday 3rd February 2010

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New Zealand’s five major banks sank into the red through the second half of last year amid mounting bad debts and the $2 billion hit from the Inland Revenue Department over tax avoidance.  

Westpac, ASB, ANZ National Bank, Bank of New Zealand and Kiwibank made an aggregate statuary loss of $1.4 billion in the second half of 2009, according to PricewaterhouseCoopers’ Perspective newsletter, which measures the performance of the country’s major banks.

That compares to a $1.3 billion profit in the first six months of the year. The loss in the second half of 2009 came from a $450 million increase in bad debts, and the $2.2 billion settlement with the IRD over the so-called conduit tax cases.  

“The last six months will be remembered for the large provisions recognised in respect of the conduit tax cases between various banks and the Inland Revenue,” said financial services partner Sam Shuttleworth in a statement. “Of the bad debt expenses in the second half of the year, approximately two-thirds arose from the commercial sector – reflecting the impact of the domestic recession and global slow-down that occurred as a result of the global financial crisis.”  

The country’s banks made a full-year statuary loss of $76 million compared to a profit of $2.9 billion a year earlier, even as net interest income remained stable. Though revenue from lending declined to $9.652 billion in the second half of 2009 from $12.336 billion in the first half, interest expenses fell to $6.587 billion from $9.094 billion, keeping margins fairly steady.  

“Pressure on margins was as a result of competitive pressure on retail deposit rates and fixed rate home lending, offset to some degree by the re-pricing of risk on commercial lending,” PwC said in its report. “While the battle for retail deposits will not subside, we would expect the NIM (net interest income) for our banks to improve” as lending margins increase for commercial customers, the report said.  

New Zealand banks hadn’t been as successful in passing on funding costs to customers when compared to their Australian parents, as net interest margins had declined 20 basis points since 2008 while they had increased 15 points across the Tasman.  

The banks’ lending margins came under scrutiny half-way through last year when Parliament’s Finance and Expenditure Committee slammed them for failing to pass on all of the cuts in the official cash rate to customers.

This led to an inquiry led by the Opposition which concluded the big four Australian banks didn’t pass on between 50 and 70 basis points to customers after the central bank embarked on its steepest series of cuts to the country’s benchmark interest rate in a decade.

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