Westpac increases bank market share

Westpac was the most active bank in this country in lending to the housing sector last year, but it sacrificed interest margin for market share, a survey out today showed.

The annual KPMG bank sector survey showed Westpac increased residential lending by 18.5 per cent in 2007 and increased its market share by one percentage point to around 16.5 per cent.

ANZ National is the largest lender with over 37 per cent of the market.

State-owned Kiwibank reported another significant increase in mortgage lending, by 36.3 per cent, with its market share now at 2.5 per cent.

Westpac paid for its aggressive stance in the lending market with a 30 basis point shrink in its interest margins.

It was also aggressive in personal lending and in agriculture, forestry and farming where its growth was up 18.6 per cent. Westpac increased its personal lending by 45.5 per cent.

Overall bank margins shrank by half the Westpac rate to 2.13 per cent, continuing last year's trend when margins shrank by 24 basis points.

Apart from competitive pressures, the explanation was due to a continuation in the trend towards fixed rate mortgages. Just under 87 per cent of all mortgages were fixed in 2007 against 83.5 per cent in 2006.

Bank profits in 2007 were up an "impressive" 10.1 per cent to $3.23 billion, with ANZ National, the Commonwealth of Australia Bank-owned ASB, and National Australia Bank-owned ASB accounting for 89 per cent of the increase. In 2006, profits increased by 11 per cent.

Bank lending overall increased $34.5 billion, or 15.9 per cent, keeping up the frenetic pace of 2006. Lending to the housing market increased 14 per cent in the year.

Impaired asset expenses showed the first signs of an upward trend and under new international accounting standards, KPMG expects to see higher and more volatile provisioning ahead.

Overall impaired asset expenses increased 88 per cent to $239m, mainly due to a $56m provision by ANZ National and $60m by Westpac.

KPMG noted that ANZ National and Westpac had taken a more conservative approach and ASB was least conservative.

Survey author, KPMG's head of banking and finance Godfrey Boyce, notes New Zealand banks had made less provisions than their Australian equivalents.

Returns on total assets including deposits fell 5 basis points to 1.09 per cent – still considered very high by international standards. Westpac was the major mover with its return sliding 21 basis points due to its lower margins.

However, return on equity rose 94 basis points to 16.58 per cent with BNZ leading the way with a 20.9 per cent return. Of the majors, ASB was next with 18.3 per cent followed by Westpac, 17.8 per cent and ANZ National, 13.8 per cent.

Bank operating expenses continued to fall as a percentage of income. The ratio fell 2.4 per cent to 42.2 per cent.

- NZPA