Banks bounce back with profit increase | KPMG | NZ

Banks bounce back with 7.35% profit increase

Banks bounce back with 7.35% profit increase

New Zealand banks have recovered from last year’s profit reversal, with KPMG’s Financial Institutions Performance Survey (FIPS) revealing a 7.35% profit increase in 2017 and a new sector profit record.

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An increase in net profit after tax (NPAT) saw banks make a cumulative profit of $5.19b, completely reversing last year’s $316.68m drop in profits.

John Kensington, KPMG’s Head of Banking & Finance, says the profit increase is largely attributed to a reduction in impaired asset expense combined with a rise in non-interest income.

“An improved dairy sector paired with a stable economy over the last 12 months has contributed to a reduction in impaired asset expense, while favourable gains on financial instruments has helped increase non-interest income.”

Total assets for the sector continued to grow in 2017, reaching a new high of $504.19b with all five major banks reporting increases in their loan books of between 1.0% and 7.57%. However, major bank growth has slowed compared to last year and they appeared less competitive in the lending market with the non-major bank percentage lending growth outstripping the majors. 

Looking past immediate challenges, banks are increasingly focused on the future - looking to drive their strategies to focus on the customer of tomorrow as they race to keep pace with changing customer expectations around service offerings.

“Unsurprisingly, the banking sector is gazing into a crystal ball right now, trying to determine what will be expected and valued in their future financial products, tools and platforms. The ability to digitise, innovate and adapt is crucial."

“Even as an ever-increasing number of customers transact online, some loyalty to bricks and mortar branches and a human touch remains. We see banks rationalising the way they balance their branch services and opening hours with their online, telephone and smart ATM offerings, with the biggest challenge being how to quickly solve a problem that only human interaction can resolve. Whether chat bots and AI will have the sophistication to fill this void in the near-future, only time will tell.”

Keeping ahead of technology trends undoubtedly brings Blockchain into the conversation for New Zealand banks, with Kensington commenting that banks understand that Blockchain is more than just cryptocurrency.

“The concept also lends itself to providing a pragmatic solution to clearing and settling payments, trade finance and securities registers. The survey showed many participants know Blockchain will be a tool of the future but are waiting to see industries or supply chains adopt it before advancing themselves, like any setup the fear of backing an unsuccessful application is causing a ‘wait and see’ approach".

"As technology advances, cyber security and data privacy regulations also remain top of mind, and doing right by the customer - or conduct risk as it is known - remains central. Last year we saw banks confident they were on top of conduct risk, and this remains well and truly a number one priority,” says Kensington.

KPMG’s Financial Institutions Performance Survey (FIPS) covered all New Zealand’s banks, and analysed the sector’s performance in 2017.

View the full report here.

For more information, contact:

John Kensington
Head of Financial Services
KPMG New Zealand
Ph: (+64) 9 367 5866
Mob: (+64) 21 769 596
Email: jkensington@kpmg.co.nz

Michelle Armstrong
Senior Communications Advisor
KPMG New Zealand
Ph: (+64) 9 363 5848
Mob: (+64) 21 902 808
Email: michellearmstrong@kpmg.co.nz

About Financial Institutions Performance Survey (FIPS)

KPMG’s annual Financial Institutions Performance Survey (FIPS) analyses the performance of both bank and non-bank sectors, and provides commentary on the issues and challenges they have faced over the year. 

It is published in two parts. This latest report, Part 2, focuses on registered banks; while Part 1, released in December last year, focused on non-bank financial institutions. For downloadable versions of these publications, go to kpmg.com/nz and enter the search term “FIPS”.

About KPMG New Zealand

KPMG is focused on fuelling New Zealand’s prosperity. We believe by helping New Zealand’s enterprises succeed, the public sector do better and our communities grow, that our country will succeed and prosper.

KPMG is one of New Zealand’s leading professional services firms, specialising in Audit, Tax and Advisory services. We have over 1,000 professionals who work with a wide range of New Zealand enterprises – from privately owned businesses, to publicly listed companies, government organisations, and not-for-profit bodies. We have offices in Auckland, Wellington, Christchurch, Hamilton, Tauranga, Timaru and Ashburton. 

Globally, KPMG operates in 155 countries; employing more than 155,000 people in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (”KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

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