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Banks make still more money and that's official

The latest survey of banks has revealed a huge increase in profits across the sector, with the total passing the $7 billion mark.

Tuesday, March 14th 2023, 9:15AM

The information comes from KPMG’s Financial Institutions Performance Survey (FIPS) for the year 2022.

The FIPS report has come in the wake of repeated calls for an enquiry into bank profits by a range of social critics. But it has nothing to do with those statements and is a statistical enumeration of actual profits, not a politicised call for action.

And it offers mitigation of the wave of anti-bank criticism, saying banks' Return on Equity (RoE) is actually lower than the Top 50 average on the Stock Exchange.

Broken down further, the FIPS report finds the banking sector increased its Net Profit After Tax (NPAT) by $1.06 billion, or 17.26% in 2022 compared with 2021.

Total NPAT for 2022 across all banks was $7.18 billion for the year.

The FIPS report credited this success to the fact that banks were making more money from on-lending of deposits or of wholesale money acquired from capital markets.

“The rise was driven by an increase in net interest margin from 1.97% to 2.10%,” said KPMG Head of Banking and Finance, John Kensington.

“The banks have enjoyed a very good year. This is on the back of controlled loan growth and margin expansion.

“The banks have positioned their businesses to benefit in a rising interest rate market, and their prudent lending policies have continued to allow them to report very low loan losses.”

Kensington said the rise in NPAT was dominated by the big four banks, with ANZ increasing by 19.8% to $2.3 billion, Westpac increasing 22.9% to $1.3 billion, ASB increasing 15.6% to $1.4 billion, and BNZ increasing by 7% to $1.4 billion.

Despite these booming numbers, Kensington warned the next two years would be harder than last year, with flatter earnings and a higher rate of growth in impaired loans than New Zealand had seen for some time.

The largest increase in NPAT outside of the big four banks was by Rabobank.

In making these comments, Kensington noted that bank profits needed to be kept in perspective. He said average banking RoE was 13.40%, which was lower than the average RoE of NZX50 companies, which was 15.00%.

He also gave an explanation of why the banks were making so much money.

“They have had available until recently, pools of cheap funding and have been able to lend to customers who, upon seeing the lowest interest rates we’ve ever experienced, have been more than willing to borrow,” Kensington said.

But this did not mean that banks were lending recklessly. He said the Credit Contracts and Consumer Finance Act (CCCFA) had in fact restricted lending to people who needed it and could afford it.

That and other regulations had “missed the mark and inadvertently caused further problems,” Kensington said.

“According to the survey participants, the sheer volume of regulation has not slowed, and there is little phasing of its implementation and no proportionality to it.”

He went on to say the banks had tidied up their balance sheets and were well placed to withstand coming hard times.

“The banking sector recognises ahead of many others that the next few years are going to be incredibly difficult from an economic perspective, and even more so when the climate, sustainability and social impacts that are affecting our country are factored in,” he said.

“The banks recognise that over the next two to three years, New Zealanders are going to have a number of economic and fiscal challenges and they have positioned themselves to assist.

“In fact, many have indicated that this is their chance to demonstrate their social licence and rebuild trust by assisting their customers through what will undoubtedly be a challenging period.”

One section of the report indicates that some specialist banks from abroad have increased their net interest rate margins by up to four times the rate of increase of New Zealand's High St banks.

The FIPS survey also praised the quality of banking assets. Part of this stemmed from, Covid 19 not proving as financially damaging as had been feared, which meant potentially impaired assets were taken out of the risk category and back into the main accounts.

The result of this was the second lowest level of impaired assets since 2006. Even so, the report suggested this might not last, with some banks considering reversing direction and raising impairment levels to prepare for the coming recession.

Another section of the report indicated there were significant efficiencies in the sector, with banks' operating income rising far faster than their operating expenses.

Tags: KPMG

« 2nd person sentenced in $8.7 million mortgage fraud caseSlow growth equals low interest rates »

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 6.19 - - -
AIA - Go Home Loans 8.74 7.14 6.75 6.39
ANZ 8.64 7.74 7.39 7.25
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 7.14 6.79 6.65
ASB Bank 8.64 7.14 6.75 6.39
ASB Better Homes Top Up - - - 1.00
Avanti Finance 9.15 - - -
Basecorp Finance 9.60 - - -
Bluestone 9.24 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Classic - 7.14 6.79 6.65
BNZ - Green Home Loan top-ups - - - 1.00
BNZ - Mortgage One 8.69 - - -
BNZ - Rapid Repay 8.69 - - -
BNZ - Std, FlyBuys 8.69 7.74 7.39 7.25
BNZ - TotalMoney 8.69 - - -
CFML Loans 9.45 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - 6.79 - -
Co-operative Bank - Owner Occ 8.40 6.99 6.79 6.65
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Standard 8.40 7.49 7.29 7.15
Credit Union Auckland 7.70 - - -
First Credit Union Special - 7.45 7.35 -
First Credit Union Standard 8.50 7.99 7.85 -
Heartland Bank - Online 7.99 6.89 6.55 6.35
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.60 7.40 -
HSBC Premier 8.59 - - -
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 7.85 7.05 6.69 6.59
Lender Flt 1yr 2yr 3yr
Kainga Ora 8.64 7.74 7.35 6.99
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 8.50 7.99 7.79 7.55
Kiwibank - Offset 8.50 - - -
Kiwibank Special - 6.99 6.79 6.65
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 9.00 7.65 7.25 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
Resimac - LVR < 80% 8.84 8.09 7.59 7.29
Lender Flt 1yr 2yr 3yr
Resimac - LVR < 90% 9.84 9.09 8.59 8.29
Resimac - Specialist Clear (Alt Doc) - - 8.99 -
Resimac - Specialist Clear (Full Doc) - - 9.49 -
SBS Bank 8.74 7.74 ▼7.09 ▲6.95
SBS Bank Special - 7.14 ▼6.49 ▲6.35
SBS Construction lending for FHB - - - -
SBS FirstHome Combo 6.19 6.14 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
Select Home Loans 9.24 - - -
TSB Bank 9.44 7.79 7.55 7.45
Lender Flt 1yr 2yr 3yr
TSB Special 8.64 6.99 6.75 6.65
Unity 8.64 6.99 6.79 -
Unity First Home Buyer special - 6.55 6.45 -
Wairarapa Building Society 8.60 6.95 6.85 -
Westpac 8.64 7.84 7.35 6.99
Westpac Choices Everyday 8.74 - - -
Westpac Offset 8.64 - - -
Westpac Special - 7.24 6.75 6.39
Median 8.64 7.19 7.17 6.65

Last updated: 12 June 2024 4:04pm

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