Bank profits rise while new mortgage lending falls

Bank profits were up in the first quarter of 2019 despite a subdued lending environment. Photo / File

New Zealand bank profits rose 9 per cent in the first three months of the year, shrugging off a fall in new lending and lower returns from interest.

Profits rose to $1.45 billion, according to the KPMG Financial Institution Performance Survey (FIPS) March 2019 quarterly analysis.

This is a big bounce back for the sector which had seen profits fall after the housing market peak in 2017.

While profit was up 8.9 per cent from the December quarter it was up more than 17 per cent on the same period in 2018.

Banks

But the report notes that while profits have bounced back from the previous quarter that has largely been driven by non-interest income of $190 million.

Overall loan growth continued on its path of steady moderate increases.

The big four banks (ASB, BNZ, Westpac and ANZ) saw lending growth of between 1.33 per cent and 1.68 per cent for the quarter.

"The movement in non-interest income might be the biggest driver of the result, but the slow-down in the mortgage lending stats likely holds a better barometer to how things are running at present," said John Kensington, head of Banking and Finance at KPMG.

Non-interest could include anything from fees and insurance commissions to property and foreign exchange transactions.

That meant it tended to be quite variable, Kensington said.

Meanwhile interest margins had stayed flat and it had been a relatively quiet quarter for the property market.

But moderate overall lending growth and falling returns from interest was starting to reflect anecdotal evidence of tougher credit conditions in the economy, Kensington said.

Mortgage lending data for the quarter showed a seasonal decline.

After a relatively strong quarter in December 2018 (up 9 per cent to $17.1b), new mortgage lending dipped in the March quarter (down 14.6 per cent $14.6 b).

Looking back over the past few quarters it was clear that regulatory changes in Australia and the Royal Commission which looked at culture and conduct, were starting to have an impact on credit growth in New Zealand, he said.

"This is probably just the forerunner," he said.

"The big one now as that as they look forward to the potential to have heavily increased capital [the RBNZ new capital ratio proposals] you've got a situation where already the banks are starting to be a bit tougher. "

The data also showed first home buyers are increasing their share of new lending, as well as use of KiwiSaver as their first home deposit.

It also indicated that over a third of first home buyers' deposits are coming from Kiwisaver, with the real number probably closer to the scheme contributing to half of all first home deposits.

"Given that KiwiSaver is meant to be there for retirement, it does beg the question of whether this trend... is pushing the problem of retirement affordability down the track for future generations," Kensington said.

Profits at New Zealand's largest bank ANZ were up 3.72 per cent on the previous quarter and 6.5 per cent on the March 2018 quarter, to $473 million.

Westpac's net profit was $300m, up 12 per cent from 266 the previous quarter.

BNZ saw net profit rise 16 per cent from $253m to $296m. CBA, owner of ASB, saw profits rise from 12.6 per cent from $292m to $329m.