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The advisory firm's latest Financial Institutions Performance Survey reveals profits were up more than 20% for the quarter, to more than $1.6 billion, compared with $1.3 billion in the same period in 2020.
The bumper figure is the record amount of bank profit in a single quarter, according to KPMG.
Unsurprisingly, home lending drove the banking sector's profits.
Low interest rates, increased spending on the home, and lack of overseas travel were cited for the increase in mortgage lending over the period.
KPMG said increasing house prices contributed to the amount being lent by the banks.
More than half of mortgage lending went to those who already own a home, with many borrowing additional amounts for home improvement projects.
ANZ dominates
ANZ wrote the highest volume of total loans over the period, at $138 million, including home, commercial and other lending channels.
ASB was second at just over $100 million, BNZ third at $91.7 million, with Westpac fourth at $91.4 million.
Kiwibank enjoyed a 12% increase in its lending book compared to the first three months of 2020. The state-backed lender wrote $24.7 million in loans from January to March.
Total lending remained flat across the banks, however, as mortgage lending growth was offset by falling corporate, consumer and commercial lending.
Overall lending rose by 1.8%, while banks enjoyed a small increase in margin, according to the report. Non-interest income grew by 64.8% and loan provisions made at the height of the Covid crisis were reversed.
KPMG's head of banking John Kensington (pictured), said: "While this quarter’s strong profit is a positive sign for the economy, there are still multiple indicators of volatility in the market and global uncertainty continues.
"Looking forward, I expect some of the trends we’ve seen in this quarter’s report will continue. Non-interest income volatility and the reversal of provisioning are likely to carry on, and hopefully so too will the stronger economic signs. The only certainty remains, however, that nothing is certain."
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