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Banking sector results for the quarter and signs of resilience

Reporting for the quarter ending December 2020 showed a stronger performance than expected and how well the banking sector is managing the economic impact of Covid-19.

KPMG’s Financial Institutions Performance Survey report shows profit for the quarter increased by 35.11% against the previous quarter, rising from $1,007.5 million to $1,361.2 million.

Much of the improvement stems from lower impairment charges (or, in some cases, reversals) in the quarter, reflecting how the current credit quality of lenders’ books is significantly better than where they were predicted to be,” says John Kensington, KPMG’s Head of Banking and Finance.

Government support packages have had a huge impact, but the financial resilience of most New Zealanders has been much stronger than anticipated this time last year. The reduction in operating costs of $84.1 million – likely a result of increased working from home and a focus on essential services – also contributed to this increase in profits.

Lending and housing

The housing market showed no signs of cooling, despite Canstar research showing that it takes a couple more than twice the time to save a 20% deposit now than it did five years ago.

Lending continued to rise, up 1.78% from the previous quarter to $447,052 million. October, November and December each marked new highs for monthly mortgage lending in 2020, with the overall trend tracking up after a drop in April. $9,652 million in loans were written in December alone, 48% and 80% higher than December 2019 and 2018 respectively.

“The housing market is a double-edged sword,” says John. “No doubt its consistent climb has helped support confidence, but when the regulator, banks and the Government all look at tools to slow it further I think we can all agree it is in undesirable territory at present.”

All the major banks have reported loan growth over the 12-month period ending December 2020, with locally owned Kiwibank outperforming the pack and growing by almost 11%.

Regulation

While the RBNZ gave the banks some breathing space from implementing upcoming regulation this time last year, it is now firmly back on the agenda. This is demonstrated by the recently announced RNBZ Enforcement Department, which will work alongside RBNZ’s Supervision team.

Two recent examples of major banks having capital and liquidity breaches highlight that there are still significant challenges being faced by the banking sector in how they report that information.

“The constant judgement the sector undergoes only reiterates the importance of taking a customer-centric approach when designing new products, reviewing legacy ones and of having effective and compliant processes for this,” says John.