by Paul McBeth
Interest margins have continued to decline for financial institutions, thanks to intense competition for mortgage lending and the need to lure investors with attractive deposit rates.
KPMG's latest annual survey of New Zealand financial institutions, released yesterday (Tuesday), reported a weighted average interest margin of 2.45 per cent for the registered banks. That’s down from 2.58 per cent in 1998 and is the lowest since the survey began tracking margins.
Chairman of KPMG’s Banking and Finance Group Andrew Dinsdale said that the interest rate squeeze had been offset by growth in total assets.
"But what’s going to be interesting is if asset growth slows and margins continue to be squeezed.
"The registered banks have acknowledged that the pressure on interest margins means there is less ability to subsidise the cost of other services provided to the banks’ customers."
Dinsdale noted that New Zealand continued to have lower interest margins than across the Tasman. The 1999 figures compare with a weighted average of 2.6 per cent in the UK and of 3.1 per cent in both Australia and the United States.
The KPMG survey noted the continued competition in the mortgage lending market, saying that it was closely following the Australian experience where non-bank lenders have changed the marketplace.
"A good number of these mortgage wholesalers are now operating in New Zealand including Australian Mortgage Securities, Interstar and Resi Home Loans. These mortgage wholesalers are generally prepared to price mortgages at more attractive rates than the commercial banks."
The survey said that it was becoming hard to differentiate mortgage products on straight interest rate pricing and so lenders were turning to greater product innovation.
"The wider financial services industry, not just registered banks, is actively involved in mortgage lending and accordingly this segment of the retail banking market will continue to be intensely competitive."
See our main news page for more on the KPMG survey