According to KPMG’s latest Financial Institutions Performance Survey (FIPS) quarterly analysis, the banking sector experienced a 2.85% decrease in net profit after tax (NPAT) from $1.24b in the December quarter to $1.20b.

John Kensington, KPMG’s Head of Banking and Finance, says the overall dip in profits is “just a recognition of the competition in the market, the slightly uncertain geopolitical times and a reflection on the NZ economy as a whole: resilient, going well, but not booming.” 

The decrease in profits was attributed to a reduction in both net interest income and non-interest income, as impaired asset expense increased. Operating expenditure control continues to be a strong focus for the sector, with a reduction in operating expenses of $34.11m (2.79%), while still aiming to increase their balance sheets. 

“A common theme across the sector is continued investment in technology enhancements to improve both customer delivery and productivity to meet performance objectives,” says Kensington. FIPS Quarterly includes an article exploring how leadership in customer experience leads to financial returns. 

Gross loans and advances remained relatively stable with only a $4.59b (1.19%) increase, the slowest quarterly increase for three years. 

Despite slightly larger loan books, interest income for the quarter is down 2.46% ($124.30m), showing that competition for quality lending is still healthy. 

“We’ve seen the industry continue to focus on quality lending, which has led to a decrease in total provisioning levels. This indicates the banks are generally confident in the quality of their loan books at the moment,” says Kensington.

The regulatory landscape remains busy with further promulgations and announcements  across a range of topics including dashboard reporting, debt to income ratios, outsourcing, dual registration and the Capital Review, all this at a time where there is increased focus on conduct and customer-centricity coming from sector participants and regulators alike. 

An article discussing the IMF’s expectations around banking supervision and what they mean for NZ banks is included in FIPS Quarterly.  

“Really, it’s been a frantic time in the sector this quarter“, says Kensington, “and the result showcases the sector’s resilience. “ 

• The March 2017 quarter has seen a slight decrease in net profit after tax (NPAT) from $1.24b in the December quarter to $1.20b
• Five of the nine survey participants reported reductions in NPAT for the quarter
• Net interest income reduced by $69.03m – with interest income reducing by $124m, partially off-set by a $55.27m reduction to interest expense.
• Impaired asset expense increased by $2.07m to $47.02m.
• Total assets reduced by $4.47b (0.094%).
• Gross loans and advances remained relatively stable with only a $4.59b (1.19%) increase.
• Overall provisioning relative to gross loans and advances has reduced two basis points to 0.52%.

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

KPMG’s FIPS Quarterly publication is designed to be a succinct regular update of what’s happening in the New Zealand banking sector. It tracks the financial performance of New Zealand’s major banks, and highlights the major themes the sector as a whole is facing. 

It is the quarterly companion to KPMG’s annual Banking and Finance Performance Survey, which looks at the performance of both bank and non-bank sectors, as well as the issues and challenges they have faced over the year.