TSB sticking to traditional banking
At NZ$4.3 billion, the assets of New Zealand's largest privately owned bank, TSB Bank, pales in comparison with the largest - ANZ National - bank's NZ$115 billion. But in the 12 months to December 2010, this was the second fastest growing bank, with a growth rate of 17.8 per cent; behind only government-owned Kiwibank.
The same period saw ANZ National's assets fall 12.9 per cent, while ASB's assets dropped 1.1 per cent, BNZ's assets fell 11 per cent and Westpac NZ's assets fell 1.1 per cent.
TSB Bank reached a key milestone in March when its deposits topped the NZ$4 billion mark. The bank added total deposits of NZ$549 million last year, with NZ$101 million of that growth coming in the final March quarter.
However, the overall slowdown in credit growth meant that lending did not keep pace with deposit growth, forcing the "traditional" bank to invest surplus funds in investments like fixed deposits of banks, certificates of deposits and local authority securities. The bank had NZ$2.3 billion in loans and NZ$1.8 billion in investments as of December 2009.
The bank, however, has no plans to change the way it does its business by venturing into operations that could potentially bring in more profits than the returns it gets from current investments. "There are no plans to diversify our current banking operations, only plans to expand our geographic presence," Kevin Murphy, managing director and chief executive officer told Banking Day.
Murphy admits investments in securities and fixed deposits have an adverse impact on the bank's overall net interest margins. The bank, however, offset this by increasing its investments in higher yields credit exposures like local authority and utilities.
In terms of lending also, the bank is very conservative, as 91 per cent of its total loans as of December 2009 were advanced towards residential mortgages. Retail loans and credit card were just 1.9 per cent of total loans.
The focus on residential mortgages meant the bank had to join the recent war in mortgage rate cuts, which saw nearly all the banks reduce rates across maturities. Murphy admits the rate cuts represented the banks' desire to grow lending within a quiet lending market.
Unlike other banks, which use short-term debt instruments as a means to raise funds, TSB Bank relies wholly on customer deposits for its funding. With deposits continuing to grow, and with no corresponding loan demand, the bank believes it does not need to raise funds via other short-term means.
A higher proportion of deposits has ensured the bank is comfortably meeting the Reserve Bank's liquidity norms. Murphy sees no issues on this front but believes "potential problems in the near future would be the effect on net interest income due to competition causing higher pricing on retail deposit funding."