13 May 2010

Bank margins 'will continue to be squeezed'

8:07 am on 13 May 2010

Higher funding costs and intense competition for deposits will continue to plague the country's banks this year, a banking academic predicts

ANZ, Westpac and the Bank of New Zealand - all Australian-owned - have reported their half year results in the last few weeks, and all saw their profits for the six months to the end of March fall.

They, along with the ASB, have said new rules from the Reserve Bank requiring them to source more of their funding from deposits, are hitting their bottom line.

While the three banks also experienced a slight rise in bad debt provisions during the half year compared with the previous six months, these provisions were sharply down compared to those of last year.

ANZ and Westpac say they believe bad debts have now peaked, though the BNZ was slightly more wary about the outlook, but conceded the worst of the recession was now over.

The senior lecturer of banking studies at Massey University, Claire Matthews, says overall the three banks have reported good results so far, in a difficult market.

But she believes bad debts may not yet have peaked, and predicts banks' margins will continue to be squeezed this year by higher funding costs and competition for deposits, something the BNZ noted as a concern.

ANZ, Westpac and BNZ have all said they are unlikely to take part in the Government's extended retail deposit guarantee scheme, when the original scheme expires in October.