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NZ bank profits dip as operating expenses rise in June quarter

Tuesday 3rd October 2017

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New Zealand bank profits dropped in the second quarter as operating expenses rose, outpacing gains from non-interest income.

Net profit dipped 1 percent to $1.19 billion in the three months ended June 30 for the country's licensed banks, KPMG's quarterly financial institutions' performance survey (FIPS) showed. Net interest income rose 3 percent to $2.3 billion and non-interest income rose 6 percent to $724.9 million, but that was more than offset by 14 percent growth in operating expenses to $165.5 million. Net interest margin gained 6 basis points in the quarter to 2.07 percent.

"The banking sector has a continued focus on sustainable and diversified lending, but at a lower rate than previously which is why we’re seeing this relatively flat, albeit still profitable and strong, performance," KPMG head of banking and finance John Kensington said in a statement. 

New Zealand's lenders have faced shrinking margins over the past year as intense competition for mortgages left them with little wiggle room in boosting interest income while at the same time greater regulatory capital requirements and the prospect of tighter global monetary policy has pushed up their own borrowing costs.

Kensington said the banks were continuing to focus on better quality lending, with provisioning down 6.8 percent from the March quarter, and past due assets down 4.9 percent. 

"It would be easy to be a bit gloomy about this result but it must be remembered the base numbers are very strong," Kensington said. "It should also be remembered that NZ has one of the strongest, most well-served and competitive banking sectors in the world; this represents a period of consolidation by the banks."

Of the major banks, Bank of New Zealand and Westpac Banking Corp reported rising profit in the quarter, with BNZ up 43 percent to $276 million and Westpac rising 8 percent to $255 million. Australia & New Zealand Banking Group saw net profit fall 13 percent to $406 million, ASB Bank parent Commonwealth Bank of Australia fell 3 percent to $248 million, and Kiwibank dropped to a loss of $32 million in the quarter, down by $54 million from the March quarter.

For the minnows, TSB Bank saw net profit up 123 percent to $10.7 million, after it lifted non-interest income 22 percent and cut operating expenses by a quarter. The Cooperative Bank lifted profit 36 percent to $2.7 million, as its non-interest income rose 71 percent to $5.7 million.

Across all the banks, gross loans rose 1.2 percent to $394.5 billion in the three months ended March 31 and were 6 percent higher than a year earlier.


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