According to KPMG’s latest Financial Institutions Performance Survey (FIPS) quarterly analysis, the banking sector experienced an increase in net profit after tax (NPAT) from $1.7b in the June 2016 quarter to $1.24b in the December quarter.

John Kensington, KPMG’s Head of Banking and Finance, says that this is much-welcomed news for the sector, having “bounced back” in December from declining NPAT levels for the two prior consecutive quarters.

The increase in profits was attributed to the modest increase in net interest income; which was driven off the back of lending asset growth and margins contracting a further three basis points (3bps) for the quarter.

In the December quarter, the banking sector ended with an additional $4.2b (0.94%) in total assets, off the back of $5.62b (1.48%) in loan book growth.

“The interesting dynamics in this quarter are the return of the sector to its upward trajectory (impaired NPAT) increased non interest income and a reduction in impairment and this achieved off the back of lower asset growth and a further reduction in margin,” says Kensington.

“It’s also interesting to note from this quarter that asset growth in the larger banks was slower than in the smaller banks.”

In late March, the RBNZ announced that the OCR is unchanged at 1.75%. This move was expected by the sector, given the Reserve Bank’s monetary policy statement in February included an official forecast of the OCR holding at 1.75% until the end of 2019.

The FIPS report notes that the housing market is starting to slow, with a noticeable decrease in sales volume, although it’s yet to be seen whether this cooling will ‘stick’ if demand-supply imbalances are not resolved. 

“We’re seeing the beginning of the impact of new LVR restrictions and the major banks excluding overseas income from affordability calculation,” says Kensington.

Overall, the New Zealand economy has continued to grow, albeit at a slower pace. KPMG’s annual FIPS survey, released in February, showed GDP growth for the quarter ending 2016 at 0.4%, lower than the previous quarter’s growth of 1.1%.

“This result and the nature of its make up indicates a more cautious approach to lending by the big players in the sector,” says Kensington.

• The December 2016 quarter has seen an increase in net profit after tax (NPAT) from $1.17b in the June 2016 quarter to $1.24b in the December quarter
• Net interest income increased by $12.32M – driven off the back of a combination of lending asset growth of 1.48%, and margin contraction of 3bps
• Non-interest income increased by 10.96% to $695M
• Impaired asset expense decreased by $106.32M to $44.95M
• Tax expense for the quarter rose in line with the higher NPAT increase.

John Kensington
Head of Banking and Finance,
KPMG New Zealand
Phone: (+64) 09-367 5866
Mobile: (+64) 021 769 596
Email: jkensington@kpmg.co.nz