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FIPS Quarterly: March 2020

FIPS Quarterly: March 2020

New Zealand banks’ lending recovering, true impact of COVID-19 yet to be seen.

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FIPS Banks: Review of 2019

Economic impact of COVID-19

Reporting for the quarter ending March 2020 is the first to show the impact of COVID-19 on New Zealand’s banking sector. While provisioning increased and the trajectory was clear at this early stage, the true economic impact of the crisis will reveal itself over the next 3-4 quarters.

“New Zealand is fortunate for two reasons; that comparatively the New Zealand banking sector was in a strong position going into this crisis and that the Government, Treasury, Reserve Bank of New Zealand (RBNZ) and the sector as a whole are all working together to guide the country through the ongoing disruption” says John Kensington, KPMG Head of Banking and Finance.

Without a doubt, the outcomes of the coming quarters will be watched closely by everyone. However, with disruption comes change, and this edition of KPMG’s Financial Institutions Performance Survey (FIPS) includes insights from Justine Sefton on how the pandemic presents an opportunity to build on momentum and drive a reset to a more sustainable economy and financial system.

Lending and housing

Lending remained strong for the quarter ending March 2020 up 1.27% ($449.9 million) compared from the previous quarter and up 4.64% compared to the same period in 2019.
While we know that this took a dip in April as a result of the lockdown period (down 57% compared to March 2020), May’s results show lending has already started to bounce bank (down 30% compared to March 2020 and 34% compared to May 2019).

The reduction in the OCR alongside global rates falling has contributed to a mini ‘mortgage war’ with New Zealand banks offering historically low rates.

“The two standout points coming out of the survey information and post period data is that firstly, as the impact of the lockdown took effect, retail lending volumes dipped to 50% of their normal levels in April and have bounced back to about 75% in May and secondly mortgages rates are now at all-time lows” says John.

Results for the quarter

The banking sector saw profit drop by 20.41% ($229.6 million) for the quarter ending March 2020 as compared to the previous quarter, to $895.6 million. Driving the result was the considerable increase in the impaired asset expense of $659.2 million (731.63%).

This was partially offset by non-interest income of $401.9 million (72.86%) which was likely to have been impacted by the volatility in the market due to the increasing uncertainty of the COVID-19 pandemic.

Operating expenses went up during the quarter by $129.2 million (8.9%). This was mixed across the sector with some banks reporting reduced operating expenses (ASB: down $27 million) and some with increased costs (BNZ: up $166 million).

“The visible impact of the COVID-19 pandemic has only just started to be seen on the sector result and there is no doubt there will be further challenges to come. What no one can say with certainty is the form of the recovery - will it be a V, a W, or some other shape? So many unknown factors impact the answer here, will there be a second wave, when will local and global borders reopen and how much is dependent on a vaccine and when can we expect one? What is clear is that this is uncertain, and the new normal is causing people to reassess how they act across all aspects of their lives (personal, business, social etc.) and there will inevitably be a ‘reset’ of all the ways we interact.” says John.

© 2020 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

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