The New Zealand banking sector remains resilient in a competitive market although the June quarter saw a slight dip in net profit, continuing the trend of small falls.
According to KPMG’s quarterly analysis of industry performance, the banking sector experienced a 1.04 per cent fall in net earnings to NZ$1.19 billion, from NZ$1.20 billion achieved in the March quarter.
The major banks reported mixed results for the quarter with an aggregate reduction of NZ$20 million. National Australia Bank-owned BNZ and Westpac were the only banks to report increases in net profit of NZ$83 million (to NZ$276 million) and NZ$18 million (to NZ$255 million), respectively.
The main reason for the overall dip in profits was a 13.92 per cent jump in operating expenses, according to John Kensington, KPMG’s head of banking and finance.
The increase in operating costs was however, largely offset by increases in net interest income, non-interest income along with a significant drop in bad debt write-offs. Impaired asset expenses fell by 73.7 per cent.
“The banking sector has a continued focus on sustainable and diversified lending, but at a lower rate than previously which is why we’re seeing this relatively flat, albeit still profitable and strong, performance.”
Gross loans and advances remained relatively stable with just a 1.18 per cent increase on the previous quarter or, NZ$4.61billion continuing the three-year slow growth trend.
“You can see evidence of better quality sector loan books in the lower level of total provisioning, down 6.80 per cent from the previous quarter. The industry is continuing to focus on quality lending and this reduction in provisioning indicates their confidence in the quality of their loan books at the moment,” added Kensington.
In line with the small growth in lending, interest income rose by 2.32 per cent to NZ$5.03 billion while interest-bearing liabilities essentially remained constant.
As a result of these two movements, with the increase in the lending rate outpacing the increase in the cost of funding, net interest margin has risen 6 basis points to 2.07 per cent.
"One area that has seen some change is the housing market, with house price growth flattening or receding, the time to sell increasing and the number of sales falling,” commented Kensington. “It certainly isn’t a market collapse but it is a slowing down.
“It would be easy to be a bit gloomy about this result but it must be remembered the base numbers are very strong. It should also be remembered that NZ has one of the strongest, most well-served and competitive banking sectors in the world; this represents a period of consolidation by the banks.”
The KPMG analyst said a common theme across the sector this year has been the sharp focus on anti-money laundering and counter financing of terrorism.
“The 2017 legal reforms reinforce the important role financial institutions play in understanding the nexus between criminal offending and the use of financial systems to disperse or distance funds that originate from it.”