KPMG review shows bank profit plateau for 2023

KPMG recently released its 37th edition of the Financial Institutions Performance Survey (FIPS) - the banking sector review for 2023.  The report reveals sector growth has plateaued, with a net profit after tax (NPAT) of $7.21 billion for 2023 – up just 0.28 per cent ($20.27 million) from 2022.

The themes and messages revealed by the survey make interesting reading for all directors, not just those in the banking sector. The report findings reinforce all the themes identified in the IoD’s Top 5 issues for directors in 2024.

KPMG Partner – Banking, John Kensington, notes that 2023 has proven to be a challenging year for the banking sector, with participants remaining cautious as they navigate the tough economic conditions ahead. He notes that keeping customer care at the fore while looking to strike a balance between opportunity and risk will be important to maintain and build trust in the banking sector.

Key challenges identified in the survey report include:

• Getting through current uncertain economic conditions
• ESG/climate reporting increasingly important for banks. Crucial role in funding transition to more sustainable initiatives
• Cyber security including fraud and scams

Opportunities

• Digital transformation innovation including harnessing AI
• Containing costs through simplification and improved processes (productivity)
• Take advantage of changing market, with competitors changing focus.

The report reinforces the need for directors in the banking sector to add value to their organisations, in the face of what is expected to be a continued period of uncertainty and changing (and less favourable/more challenging) conditions. It identifies the resilience of the New Zealand economy to all the challenges experienced during the first half of this decade. While remaining optimistic for improvements (both financially and regulatory), it recognises there is still much uncertainty for directors to navigate and lead their organisations through. However, this also presents opportunities for directors.

This applies equally to all New Zealand directors.

While the banks have been able to increase profits despite the challenges encountered, they, like all directors, need to be focusing on ways to overcome a myriad of unknown variables. This resonates with all the Top 5 issues for 2024, including:

Future-ready succession - "New models of board leadership, and different expertise and capability are needed to meet these challenges,”

Harnessing AI - "Time for boards to embrace the AI challenge, including taking advantage of productivity gains, while managing risks, including IP and cyber security,”

Enabling productivity - "Boards and management are facing ongoing uncertainties. Innovation, seeking new opportunities, finding the right capability, and streamlining processes are all needed to drive the productivity to manage the squeeze"; and,

The value adding board - "Directors are challenged not only to excel in their responsibilities but also to establish a clear purpose for, and provide enduring value to, their organisations,”  

Climate leadership – "Boards also have a leadership role in supporting management to adapt to changing climate policy in the face of ongoing and more severe weather events, and regulatory requirements.”

This final issue overlays everything and must be considered both in terms of regulatory compliance, as well as leadership in addressing future uncertainty. Nearly all the bank survey participants noted that climate change reporting and ESG now present them with the biggest opportunities and challenges they have and will face in the medium to long term.

See the full FIPS Banks review 2023 here.