Good news from across the ditch
By Eric Johnston | smh.com.au | 24 September
For the first time in years, Australian banks have good news from their operations across the Tasman, as New Zealand emerges from its worst recession in three decades.
The outlook for New Zealand remains a critical driver of sentiment for Australia's four biggest banks, given nearly 20 per cent of the assets of Australian banks are there, making it their most important international market.
However, nearly two years of deep recession and rising losses have taken their toll on profits. Official figures show that New Zealand's gross domestic product rose 0.1 per cent in the three months to the end of June, following a 0.8 per cent drop in the first quarter, Statistics New Zealand said.
Most economists had forecast a slight contraction in growth. "New Zealand has an open economy, so it will fall harder but stands to recover faster than most others," Stewart Oldfield, a banking analyst with EL & C Baillieu, said. Australian banks dominate New Zealand, controlling nearly 90 per cent of the market, according to Reserve Bank of New Zealand figures.
ANZ operates the biggest bank across the Tasman, having doubled its exposure with the purchase of the National Bank of New Zealand in 2003, when credit growth peaked.
Westpac has the second-biggest franchise, but has been losing market share in recent years. Commonwealth Bank's Auckland ASB Bank and NAB's Bank of New Zealand are similar in size.
Growth in New Zealand was spurred by rising consumer spending and exports of agricultural products, mostly dairy. New Zealand's dollar surged yesterday as traders took bets that interest rates were likely to rise earlier than expected.
Still, swings in currency are unlikely to significantly affect earnings, as most banks hedge currency. ANZ's chief executive, Mike Smith, was one of several bankers to warn of a grim outlook for New Zealand, warning that conditions were difficult and any recovery was likely to be slow.
In an update to investors, Mr Smith noted that almost all of the increase in ANZ's bad debts over the past three months had been due to losses in New Zealand. Still, a pick-up in growth does not mean the worst is over for the banks.
They still face up to $1.8 billion in back taxes in New Zealand in a long-running legal case centred on complex loan arrangements.
NAB's New Zealand business is appealing against a recent NZ High Court decision where it was hit with $NZ654 million ($525.3 million) in taxes. Decisions against other banks' tax status are expected in the next few months.
First published by Smh.com.au on September 24 2009
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