Bank profits dip slightly but remain near record levels

Increasing margins have seen interest income rise strongly at the banks. Photo / NZME

Bank profits dipped slightly in the past quarter but are yet to feel much impact from the economic slowdown.

Banks collectively made $1.728 billion in the three months to June 30 - just shy of the $1.744b record set in the March quarter, figures from KPMG's quarterly Financial Institutions Performance Survey show.

John Kensington, KPMG head of banking and finance, said the positive results still did not reflect the economic and regulatory changes that were affecting the wider economy.

"It is hard to believe this will continue, given the current economic environment.

"The sector result seems immune from the combined impact of inflation, rising interest rates, supply chain issues, regulatory impacts on lending volumes and a decrease in confidence."

The report shows net interest income rose 7.56 per cent to $3.22 billion over the quarter.

All the major banks increased their interest margin over the quarter apart from SBS Bank, which was flat.

Over the year to June 30, SBS and Heartland's margins fell by 30 basis points although their margins remain above the other banks'.

Kensington said the rise in net interest income reflected net interest margins hitting their highest level for each of the big five banks since June 2019.

He put that down to more borrowers rolling off historically low fixed interest rates.

ANZ, ASB and BNZ all had a margin of 2.2 per cent, while Westpac was at 2.1 per cent and Kiwibank at 2.3 per cent.

Non-interest income was down 4.34 per cent to $820 million while operating expenses were up by more than 10 per cent to $1.577b across the sector.

Kensington said operating expenses had returned to more normal levels after reaching a five-year record last quarter.

This was potentially being driven by higher costs linked to the tighter labour market.

Impaired asset expenses were down 0.95 per cent to $52m.

Gross loans rose just 1.13 per cent to $494b over the quarter but were up 5.41 per cent over the year.

Over the year Heartland Bank grew its loan book the most at 17.27 per cent followed by SBS bank at 11.65 per cent and then Kiwibank at 9.79 per cent.

The Cooperative's gross loan book shrank slightly falling 0.15 per cent over the year.

Kensington said households continue to come under pressure from the rising cost of living and increasing home loan rates.

Despite house prices falling by 7.9 per cent since November 2021, new mortgage lending was down 29 per cent year-on-year.

"Households and businesses have been focused on maintaining their loan repayments despite facing cost-of-living challenges. It remains to be seen whether they will be able to keep this up," Kensington added.