Banks remain strong, despite facing funding requirement pressure
The New Zealand banking sector continues to deliver strong results, albeit with a slight reduction in profitability due in part to lending growth that has outpaced funding growth for the June quarter.
According to KPMG’s latest Financial Institutions Performance Survey (FIPS) quarterly analysis to June 2016, the banking sector experienced a reduction in net profit after tax (NPAT) from $1.19b in March 2016 to $1.18b in the June quarter.
John Kensington, KPMG’s Head of Financial Services, says that this reduction in profits, is attributed to the fact interest income that has not increased as much, and the sector has incurred impairment charges and a reduction in non-interest income.
The June quarter experienced strong lending growth, recording the highest and second fastest quarterly growth in the last five years of 2.22% or $8.08b.
“The strong economy and improved business confidence has seen New Zealanders continue to invest in property, rather than putting money on deposit. New Zealanders appetite for borrowing is exceeding their appetite for depositing in the June quarter, in turn, putting pressure on banks funding requirements,” says Kensington.
In July, the Reserve Bank of New Zealand announced a new round of adjustments to the Loan to Value Ratio (LVR) restrictions that targeted the risk of financial instability posed by property investor lending and the record lending growth.
Kensington says that the banking sector has applauded the new restrictions and we have seen the banks implement the new restrictions ahead of time. This is due to concern around New Zealanders appetite for borrowing and upward pressure that is being placed on the property markets.