New Zealand banks' net interest margins rose in the December quarter but profit flattened off with auditing and financial advisory firm KPMG suggesting ongoing record bank profits may be in the rearview mirror, at least for now.
In its December quarter Financial Institutions Performance Survey (FIPS), KPMG says quarterly net profit after tax across the banks surveyed was unchanged from the September quarter at $1.77 billion.
Net interest increased by $159 million, or 4.5%, to $3.69 billion from $3.53 billion, which KPMG attributes to a 0.6% increase in gross lending by the major banks with the majority of them reporting about a 10 basis points increase in net interest margin.
There was, however, a $166 million fall in non-interest income, representing a 26.6% drop from the September quarter, stemming mostly from lower gains on hedging and lower fees and commissions, KPMG says.
Meanwhile, operating expenses, impaired asset expenses and tax expenses all remained relatively flat compared to the September quarter, which resulted in the flat profit versus the September quarter, the firm says.
"In summary, the December 2022 quarter’s banking sector results show a strong finish to the calendar year. The final quarter helped push the sector to a record profit for the year, demonstrating resilience across the industry following the Covid-19 pandemic and the resulting global and domestic economic impacts," says KPMG.
"However, the December quarter has also represented a slow in growth for the sector as profit for the quarter remains level with the September quarter’s results. It may be that record profits are now behind us as the banking sector looks ahead to face continued high inflation, an Official Cash Rate that continues to rise, house prices that many believe have yet to bottom out and an engineered recession by the Reserve Bank."
"These factors will all put pressure on households and many may struggle to make their loan repayments, with some moving onto mortgage interest rates well above what they were initially tested at."
KPMG also suggests net interest margins may fall given the Reserve Bank's Funding for Lending Programme stopped offering new "cheap" money to banks in December.
NZ's banks' combined September-year profit surged by more than $1 billion, topping $7 billion for the first time, KPMG's last annual FIPS showed.
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