Despite a weakening economy, rising interest rates and high inflation, bank profits remain near record levels.
Total sector profits for the three months ended June were $1.73 billion, down slightly from the previous quarter’s record as lending increased, bad debts remained low and margins widened.
But industry gains were 19 percent higher than a year ago and more than double what they were two years ago, as Covid-19 and related restrictions began to make themselves felt.
KPMG banking chief John Kensington said the banks and their profits have escaped the economic headwinds affecting their customers.
“Industry outcome appears immune to the combined impact of inflation, rising interest rates, supply chain issues, regulatory impact on credit and a loss of confidence.”
He said banks’ net interest income – the difference between the cost of borrowing and the cost of borrowing – rose nearly 8 percent to $3.22 billion.
Kensington said banks not only expanded their balance sheets but also increased their credit spreads by up to 30 basis points.
Another factor working for the banks has been the – so far – low level of bad and bad debt as households have been buoyed by full employment and rising wages and have been stressed on their ability to cope with higher interest rates.
‘Some injuries’ predicted
“It’s hard to believe that this is going to continue in the current economic environment,” Kensington said.
“Where it will end, if there are sustained periods of high inflation and interest rates continue to rise and people’s credit that is currently tight gets re-evaluated … to higher, newer, more current interest rates, then you’re going to start to see some pain.” .”
Kensington noted that three of the big banks, ANZ, BNZ and Westpac, had September balance sheet dates and other evidence of the impact of changing conditions.
Total gross loans and advances increased 1.1 percent sequentially to $499.3 billion, but a sign of the housing market slowdown was the 29 percent decline in new mortgage financing in June from the same month a year ago.
But retail bank loan books were still overwhelmingly real estate, which accounted for 64.6 percent of sector lending, down slightly from the previous quarter, while lending to businesses at 20.1 percent and agriculture at 11.8 percent Downtrends for both classes have continued over the past 18 months.
Kensington said he didn’t think the CCCFA’s changes would have a major impact on lending levels.
Banks’ operating expenses rose more than 10 percent as business returned to normal, requiring more staff, improved systems and higher regulatory costs.
ANZ remained the largest bank with more than $193 billion in assets, followed by BNZ in second place, followed by ASB and Westpac. The largest locally owned bank was Kiwibank in fifth place.