The New Zealand banking sector has experienced a slight dip in profits for the March quarter, reversing the good work of the previous quarters, where it had bounced back from two successive quarters of decreases.
According to KPMG’s latest Financial Institutions Performance Survey (FIPS) quarterly analysis, the banking sector experienced a 2.85 percent decrease in net profit after tax from $1.24 billion in the December quarter to $1.20 billion.
John Kensington, KPMG’s head of banking and finance, says the overall dip in profits is “just a recognition of the competition in the market, the slightly uncertain geopolitical times and a reflection on the New Zealand economy as a whole: resilient, going well, but not booming.”
The decrease in profits was attributed to a reduction in both net interest income and non-interest income, as impaired asset expense increased. Operating expenditure control continues to be a strong focus for the sector, with a reduction in operating expenses of $34.11 million (2.79 percent), while still aiming to increase their balance sheets.
“A common theme across the sector is continued investment in technology enhancements to improve both customer delivery and productivity to meet performance objectives,” says Mr Kensington. FIPS Quarterly includes an article exploring how leadership in customer experience leads to financial returns.
Gross loans and advances remained relatively stable with only a $4.59 billion (1.19 percent) increase, the slowest quarterly increase for three years.
Despite slightly larger loan books, interest income for the quarter is down 2.4 percent ($124.30 million), showing that competition for quality lending is still healthy.
“We’ve seen the industry continue to focus on quality lending, which has led to a decrease in total provisioning levels. This indicates the banks are generally confident in the quality of their loan books at the moment,” says Mr Kensington.
The regulatory landscape remains busy with further promulgations and announcements across a range of topics including dashboard reporting, debt to income ratios, outsourcing, dual registration and the Capital Review, all this at a time where there is increased focus on conduct and customer-centricity coming from sector participants and regulators alike.
“Really, it’s been a frantic time in the sector this quarter, and the result showcases the sector’s resilience,” says Mr Kensington.
Key findings from KPMG New Zealand’s March 2017 FIPS Quarterly
The March 2017 quarter has seen a slight decrease in net profit after tax (NPAT) from $1.24b in the December quarter to $1.20b
Five of the nine survey participants reported reductions in NPAT for the quarter
Net interest income reduced by $69.03m – with interest income reducing by $124m, partially off-set by a $55.27m reduction to interest expense.
Impaired asset expense increased by $2.07m to $47.02m.
Total assets reduced by $4.47b (0.094%).
Gross loans and advances remained relatively stable with only a $4.59b (1.19%) increase.
Overall provisioning relative to gross loans and advances has reduced two basis points to 0.52%.