FIPS Quarterly: June 2018 - KPMG | NZ
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FIPS Quarterly: June 2018

FIPS Quarterly: June 2018

New Zealand banks have bounced back from last quarter’s drop of 11.35% with a net profit increase of 14.61%.

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John Kensington - KPMG NZ - Partner

Partner - Audit, Head of Banking & Finance

KPMG in New Zealand

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KPMG’s latest Financial Institution Performance Survey (FIPS) quarterly analysis highlights a net profit increase of 14.61% for New Zealand banks to $1,424 million, a change from last quarter’s 11.35% drop. The report highlights the shifts driving banks profitability over the last quarter and includes articles exploring sustainable reporting and customer experience in the financial services sector.

The increase in profit can be attributed to an increase in net interest income of $48 million and non-interest income by $77 million, paired with a decrease in impaired asset expense of $116 million and operating expenses of $7 million, with only an increase in tax expense offsetting the growth in profit.

Loan growth across the banks continued at a steady rate, with Heartland marginally ahead of TSB for the quarter and with year-to-date growth of 12.28% and 13.61% respectively. BNZ, ANZ and CBA also experienced an upwards trend in loan growth for the quarter with results greater than 1.5%.

Following a minor setback for the quarter ending March 2018, asset quality appears to have recovered, with results showing lower impairment expense and relatively stable provisioning. This trend indicates that the downward spike in the previous quarter was likely driven by a variability of results rather than a clear signal of a turning point in the market cycle as speculated. However, given that provision levels have been held at these higher levels, this direction may still be an early indicator of coming change.

Given the volatility of the last two quarters, it will be interesting to see how the next couple of quarter’s results behave as there are contradictory indicators – with, most notably, business confidence still down while other indicators are more positive.

The report also touches on two significant wider impacts; Better Business Reporting and Customer Experience Excellence. This continues an increased focus on balance scorecard type measurements in the reporting of results.

Key findings:

  • Profits have increased for the New Zealand banking sector by 14.61%, from $1,242m in the previous quarter to $1,424m for the quarter ending June 2018.
  • Net interest income increased by $48m while non-interest income increased by $77m.
  • Operating expenses grew by $7m and impaired asset expenses by $116m.
  • Total loan growth has continued to grow at a modest rate with an increase of 1.58%.
  • Asset quality has improved in the quarter with provisions and impairment expenses stabilising.

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