Bank profits have hit another quarterly high but the triple threat of inflation, interest rates and tighter lending is expected to put pressure on the sector this year.
KPMG’s quarterly Financial Institutions Performance Survey shows bank profits rose 6.7 per cent in the December quarter to hit a record $1.61 billion.
That rise was driven by lower operating expenses and an increase in net interest income driven by strong loan growth.
Operating expenses fell 7.43 per cent over the quarter or $116.9m driven by cuts made by ASB, Westpac and the BNZ.
Net interest income rose 3.05 per cent to $2.93b while non-interest income fell 8.66 per cent or $70m largely driven by ASB and BNZ.
Impaired asset expenses were cut by 19.86 per cent or $5.8m.
Gross lending rose 1.63 per cent to $487.6 billion.
Heartland Bank had the highest percentage of loan growth over the quarter at 5.19 per cent followed by Kiwibank and SBS.
Year on year Kiwibank had the highest percentage growth at 13.68 per cent followed by Heartland and the BNZ. The Cooperative Bank’s lending grew at the slowest pace up just 2.14 per cent.
But John Kensington, KPMG’s head of banking and finance said since the December quarter New Zealand had seen both inflation and interest rates rise significantly and quickly.
At the same time lending rates had slowed slightly due to tighter loan to value ratios and changes to the Credit Contracts and Consumer Finance Act while house prices had dropped denting business confidence.
“It’s going to be interesting to see how this plays out over the next two or three quarters,”Kensington said.
“This will be the first time in a long time where the stars have aligned in a negative way, and it looks to be a challenging time ahead for the economy and sector.”
Centrix managing director Keith McLaughlin said for the first time since the economic recovery from the Global Financial Crisis there were signs of New Zealand’s credit market tightening.
“The message to both business and consumers is clear – the cost of borrowing is increasing. Already banks are raising their floating interest rates, and this is likely to dampen demand and slow the housing market.”
McLaughlin said the record growth experienced in the last 18 months was likely at an end.
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