NZ bank profits hit $7.2 billion: KPMG

The banking sector showed resilience over 2024, KMPG says. Photo / NZME

New Zealand’s banking sector was resilient in 2024 despite economic challenges, a report by consultancy KPMG says.

KPMG’s Financial Institutions Performance Survey (Fips) bank review showed the sector’s net profit for 2024 came to a total of $7.22 billion – a slight increase of 0.25% from 2023.

“This relatively flat growth comes alongside a 2.23% ($342.57 million) increase in net interest income to $15.69b, fuelled by loan growth of 3.05%, while at the same time, net interest margins also remained flat at 2.34%,” KPMG said.

However, the sector faced headwinds with an 8.07% rise in operating expenses driven by personnel costs, technology costs and the impact of inflation, and slight relief from a 32.75% fall in impaired asset expense.

The report comes as the chief executives of the big four banks – ANZ, ASB, BNZ and Westpac – have been back before Parliament’s Finance and Expenditure Committee, which is inquiring into banking competition.

KPMG banking partner John Kensington said the survey results reflected the “robustness” of the sector.

He told the Herald bank profitability was around the middle to upper end compared with other countries.

“It’s probably at the middle to upper end if you did a jurisdictional comparison,” he said.

“There are a couple of reasons for that.

“One is that there is a need for banks, over the next few years, to increase their capital significantly,” he said.

“There is a realisation that the banks need to be making profits to ensure that they can comply with capital requirements that are going to come over time.”

Kensington said the Reserve Bank’s capital requirements were at the upper end of the scale, relative to other countries.

“I think that they are at the upper end of where they need to be, particularly given what we have just come through, and what we have come through really strongly.”

The sharp fall in provisioning reflected the winding back of what turned out to be over-provisioning during the uncertainty of the Covid era.

KPMG banking partner John Kensington.

Kensington said most participants in the survey indicated some relief in the capital requirement would be helpful.

On competition

“I think our market could probably do with more competition, but the question is: How do you get it?

“Do you allow new entrants to have slightly less onerous regulation, and how long do you let them do that for?

“Do you allow some relief by making the capital rules a bit easier, or do you do it by making it scalable?

“New Zealand would probably benefit from greater competition, but you heed to remember that this is a small market – a small market a long way from the rest of the world – so starting a new business would be relatively expensive.”

In its survey result, KPMG said: “The clearest message we received from survey participants was that they see New Zealand’s sluggish economy, with low growth, poor productivity and stretched infrastructure, as requiring investment – some of which will need to come from offshore.

“Participants stated that to attract such funding, we need to be investor-friendly with a stable and consistent set of policies, and that to achieve this, New Zealand requires long-term bipartisan politics.”

Key figures:

• Net profit after tax increased by $17.95m (0.25%) to $7.22b ;
• Net interest income increased by $342.57m (2.23%) to $15.69b;
• Non-interest income increased by $30.75m (1.40%) to $2.23b;
• Operating expenses (including amortisation) increased by $557.43m (8.07%) to $7.46b;
• Net interest margin remained stable at 2.34%;
• Impaired asset expense decreased by $209.55m (32.75%) to $0.43b;
• Tax expenses increased by $7.49m (0.27%) to $2.81b.

Jamie Gray is an Auckland-based journalist, covering the financial markets and the primary sector. He joined the Herald in 2011.