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Banking: Thoughts and Implications for the Next 3 Years

Banking: Thoughts and Implications for the Next 3 Years. March 2010 Ken Christie, Chief Financial Officer, Bank of New Zealand.

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Banking: Thoughts and Implications for the Next 3 Years

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  1. Banking: Thoughts and Implications for the Next 3 Years March 2010 Ken Christie, Chief Financial Officer, Bank of New Zealand DISCLAIMER: Ken Christie is the CFO at the Bank of New Zealand. This presentation is intended as a general discussion only. The views expressed are his own and do not necessarily represent those of Bank of New Zealand or its related entities.

  2. Focus on 3 areas in discussion today • Current overview of Global, Australian and NZ Banking Sector • An offshore investors viewpoint on NZ Banking sector • Implications for the next 3 years • Open up for Q & A

  3. 1. Current overview of Global, Australian and NZ Banking Sector Global • USA and European Banks still under enormous pressure • Migration of Government ownership will be a critical issue • Regulation is and will dramatically increase in future • Lowered returns expect from Banking sector • Liquidity and capital costs/levels will be substantially higher • Still issues with some assets on balance sheet of Banks • Ratings impact will challenge the cost of funding • Still have 2/3 years of pain to come • Mergers and consolidation will continue

  4. 1. Current overview of Global, Australian and NZ Banking Sector Australia • Remained incredibly strong throughout the GFC • 4 major Banks remain AA rated • Used government guarantee to fund through parts of GFC • NAB has not used government guarantee since October 1st last year • Cost of funds are dramatically higher than prior to GFC • Have had the ability to pass through to clients • Major consolidation has now occurred • Country and economy remain very strong

  5. 1. Current overview of Global, Australian and NZ Banking Sector New Zealand • Remained very strong throughout the GFC • All major Banks remain AA rated • Can access term offshore wholesale markets at a cost • Significant RBNZ liquidity requirement over next 3 years • Government guarantee was used by market participants • Cost of funds will continue to go higher • B&DD position of all Banks increased substantially • Country and economy is slowly coming out of recession • Structural imbalance in NZ Inc. balance sheet

  6. 2. An offshore debt investors viewpoint on NZ Banks • Perspective from visiting over 130 debt investors in past 3 years • Investors look at Sovereign risk first, banking risk second • Global investors have limited knowledge of the country, it’s competitive advantages and the stability it offers • Often linked/grouped with Australia/Bank parents for exposure and limits • Small part of the world in context/long way away from investors • Would like to see regularity, size and depth on issuance • Happy to purchase across term spectrum • Selling NZ as much as the Bank on the road • Investors need to understand us, what we do, why we do it well • Long term capacity will be limited

  7. 3. Implications for the next 3 years • Cost of funds will hopefully peak in the next 2 years • Will still be exposed to global events • How much debt capital will the market give NZ? • Corporates/business will deleverage, more equity needed • Banking covenants will be monitored more closely • Clients will need to show sustainable cashflows to support borrowings • Bank funding will most likely come from Europe/Asia • Need to be more regularly meeting with investors • Bank ROE will still remain at 15 - 20% on transactions/client relationships • Will absolutely have funds available for the right client and right transactions

  8. 4. Open for Q & A • Happy to take questions

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