In its latest Financial Institutions Performance Survey (FIPS), KPMG says New Zealand banks’ experienced an 11.35% drop in net profit after tax in the March 2018 quarter.
This left the banking sector’s profits at $1.24 bilion.
Although they saw their net interest income increase by $54 million, non-interest income decreased by $144 million and operating expenses rose by $16 million as compared to the December quarter.
Crucially, the banks also saw a sizeable increase in impaired asset expenses – which relate to things the banks don’t expect to recover at the value they have on the book.
Impaired asset expenses increased by $122 million, but this increase, at least partially, also reflected accounting rules changes that mean banks need to account for expected losses rather than actual losses.
The amount of lending done by banks did grow over the March quarter, although the growth was at a slow rate of 1.04%.
Of the banks, TSB saw the strongest loan growth with an increase of 2.95% in the quarter, seemingly at the expense of net interest margin.
KPMG head of banking and finance John Kensington says that many in the industry have been foreshadowing an increase in impairment numbers for some time.
That means the increased impairment is neither unexpected nor severe, he says. “It could indicate a turning point in the market or simply a variability in results.”
The negative movement of both profits and impairment will be watched closely in the next quarter, Kensington says.
“Particularly as it comes at a time when global markets and geopolitical factors show some signs of volatility and uncertainty.
“But while it might be a pivot point, it’s certainly not time to panic as the New Zealand banking sector as a whole still remains strong.”
The report also highlights that the ongoing Royal Banking Commission in Australia means the commercial conduct of banks will continue to be an issue.
New Zealand banks are under pressure on this front as the Reserve Bank and the Financial Markets Authority examine their conduct and culture risks.
