FIPS Quarterly: June 2017

FIPS Quarterly: June 2017

Banking sector profits relatively stable, says KPMG report

John Kensington - KPMG NZ - Partner

Partner - Audit, Head of Banking & Finance

KPMG in New Zealand


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FIPS June 2017

The New Zealand banking sector’s profits have remained relatively 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.

According to KPMG’s latest Financial Institutions Performance Survey (FIPS) quarterly analysis, the banking sector experienced a 1.04% decrease in NPAT from $1.20b in the March quarter to $1.19b.

John Kensington, KPMG’s Head of Banking and Finance, says 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”, says Kensington.

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,” says Kensington. “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. 

FIPS Quarterly includes an article by KPMG Forensics Director Gareth Pindred, sharing trends and lessons learnt in the AML/CFT compliance space. 

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 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.”

Key findings from KPMG New Zealand’s June 2017 FIPS Quarterly:

  • Lower net profit after tax (NPAT): 1.04% decline in NPAT
  • Better net interest margins (NIM): 3.32% growth in net interest income; NIM at 2.07% (Q2) vs 2.01% (Q1)
  • Slow lending growth: 1.18% increase in gross lending
  • Higher costs: 13.92% rise in operating expenses
  • Lower write-offs: 73.70% reduction in loan impairments
  • Improved loan quality: 6.80% reduction in provisions

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