New Zealand banks stay strong in the face of uncertainty in the financial markets
Despite growing headwinds in both the global and local economy, New Zealand’s banking sector remains profitable, but within the results are some subtle but important messages.
KPMG’s latest Financial Institution Performance Survey (FIPS) quarterly analysis to March, shows that the New Zealand Banking Sector continues to deliver strong results, with net profit after tax, up by 7.96% from December 2015 to reach $1.20b in March 2016.
John Kensington, KPMG’s Head of Financial Services, says that there are several driving factors maintaining our local sector resilience – despite volatility in the financial markets.
“Profit is buoyed by the swing in derivative valuations – with an increase of $196.19m in non-interest income, and the fact that favourable funding conditions continue. The outstanding performance of ANZ and BNZ have also played a significant role in holding the sector up this quarter, with increases in net profits of $69m and $67m respectively and a combined $242m increase in non-interest income.”
Interest margins continue to be squeezed – the interest margin for the March quarter was 2.17% compared to 2.21% in December 2015. Driven largely by continued competitive pressures for residential mortgage lending and the low interest rate environment.
John Kensington says that while the sector is well positioned with asset quality at a consistent or slightly improved level, it is important to note the precautionary steps that have been taken in response to what is taking place in the property market.
All four of the major banks in New Zealand, have voluntarily stopped real estate lending to foreigners and non-residents where a loan is supported by foreign income.
Along with the recently announced proposed strengthening of the Reserve Bank’s loan-to-value ratio (LVR) rules – that will see a higher deposit threshold required for property investors (40%) and increases for others across the country.
In response to the escalating uncertainty in the financial markets – “the banks are ensuring that the earnings they have are sustainable, and are starting to take steps to help mitigate and reduce their exposure to volatility in the global and local financial markets,” say Kensington.
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