New Zealand bank profits likely to fall: RBNZ Gov

WELLINGTON: New Zealand banks are likely to be earning less in the future as increased regulation, weaker demand and higher costs crimp margins, the head of the central bank said on Saturday.

The country's banking system, dominated by four Australian-based institutions, fared better than most around the world through the global financial crisis and downturn largely because they did not venture into the exotic financial products of US and European banks.

However, the Reserve Bank of NZ (RBNZ) is still looking to improve regulation of institutions through the levels of capital rsources and their sources of funding, which affect their profitability.

"All things considered, it seems unlikely that the rates of return in banking enjoyed over the past decade can be sustained in the future," RBNZ Governor Alan Bollard told a conference.

He said the RBNZ, which regulates the banking system, will implement the Basel III accord -- global banking supervision rules due for implementation from 2013 -- to suit local circumstances such as changes to liquidity structures.

"We don't believe our banking system requires the sort of radical overhaul that is being discussed as necessary in some other countries, given the relative resilience of our banks over the course of the crisis," Bollard said.

The RBNZ put in temporary liquidity facilities during the global financial crisis such as broadening the type of securities accepted as collateral for loans.

He said changes to funding ratios might also help to dampen credit cycles thus reducing risk within the banking system, while it was taking steps to minimise the fall out for the New Zealand financial system should a bank fail.

There are currently 19 registered banks in New Zealand, although the sector is dominated by four Australian-owned entities - ANZ-National Bank , Bank of NZ , ASB Bank , and Westpac .

Copyright Reuters, 2011