Banks keep economic headwinds at bay with $1.7 billion profit in latest quarter

The industry’s profit was 19% higher than a year ago.
Photo: RNZ/123rf

Bank profits remain at near record highs despite the slowing economy, rising interest rates and high inflation.

Collective profits for the sector were $1.73 billion for the three months ended June, slightly below the previous quarter’s record, as loans increased, bad debts remained low and margins increased.

But the industry’s profit was 19% higher than a year ago and more than double that of two years ago as Covid-19 and related restrictions began to take their toll.

Chief banking officer at advisory firm KPMG, John Kensington, said banks and their profits have escaped economic headwinds affecting their customers.

“The sector result appears to be sheltered from the combined impact of inflation, rising interest rates, supply chain issues, regulatory impacts on lending volumes and lower trust.”

He said banks’ net interest income – the difference between borrowing and lending costs – rose nearly 8% to $3.22 billion, the biggest gain in three years, which likely reflects more borrowers moving away from historically low fixed interest rates.

Kensington said that in addition to expanding their balance sheets, banks also increased their credit spreads by 30 basis points.

Another factor working for the banks was the low level of bad and bad loans – until now – as households were supported by full employment and rising wages, as well as stress tests for their ability to cope. at higher interest rates.

“Some injured” predicted

“It’s hard to believe this is going to continue, given the current economic environment,” Kensington said.

“Where it will end is if there are prolonged periods of high inflation and interest rates continue to rise and people’s loans, which are currently fixed, are re-priced… at higher, newer and more current rates, that’s when you’ll start to see some hurt.”

Kensington noted that three of the major banks, ANZ, BNZ and Westpac, had September sale dates and more evidence of the impact of changing conditions.

Overall gross loans and advances rose 1.1% from the previous quarter to $499.3 billion, but a sign of a slowing housing market was the 29% decline in new mortgage financing in June compared to compared to the same month a year ago.

But retail banks’ loan portfolios were still heavily biased towards real estate, which accounted for 64.6% of sector loans, slightly less than in the previous quarter, while corporate loans at 20.1% and agriculture at 11.8% continued the easing trend for both classes. over the past 18 months.

Kensington said it did not believe the changes to the CCCFA would have much impact on the level of lending.

Banks’ operating expenses rose more than 10% as business began to return to normal, requiring more staff, improved systems and higher regulatory costs.

ANZ remained the largest bank with over $193 billion in assets, followed by BNZ, followed by ASB and Westpac. The largest locally owned bank was Kiwibank in fifth place.

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