The banking sector experienced a 1.04% decrease in NPAT from $1.20b in the March quarter to $1.19b.
KPMG Head of Banking and Finance John Kensington said the major contributing factor to the dip in profits was an increase in operating expenses. This was offset by increases in net interest income, non-interest income along with a significant decrease in impaired asset expense ($34.65 million or 73.70%).
“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 only a $4.61b (1.18%) increase, 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% 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”, Kensington said.
However, in the quarter, lending rates have outpaced the increase in cost of funding, such that almost all survey participants have seen an increase in net interest margin – overall rising from 2.01% to 2.07%. Interest income rose by 2.32% to $5.03b, while interest-bearing liabilities essentially remained constant.
“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.
“It certainly isn’t a market collapse but it is a slowing down.”
A common experience across the sector this year has been the sharp focus on anti-money laundering and counter financing of terrorism (AML/CFT). 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.
Kensington summarised: “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 New Zealand has one of the strongest, most well-served and competitive banking sectors in the world; this represents a period of consolidation by the banks.”
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Kiwi Group reports sharp fall in profit
The banking sector’s profits remained stable for the June quarter, with a slight dip in net profit after tax (NPAT), continuing the trend of small decreases from the previous quarter, KPMG’s latest Financial Institutions Performance Survey shows.