FIPS Quarterly: December 2015

FIPS Quarterly: December 2015

New Zealand banking sector remains resilient in a competitive market.

John Kensington - KPMG NZ - Partner

Partner - Audit

KPMG in New Zealand

Wellington night scape

Despite some softening in interest margins and uncertainties in the global economy, New Zealand’s banking sector continues to deliver strong results.

John Kensington, KPMG’s Head of Financial Service, says that the strong results are on the back of growing loan books, fuelled by the Auckland property market and increased farm debt.

According to KPMG’s latest Financial Institutions Performance Survey (FIPS) quarterly analysis to December 2015, the banking sector saw a reduction of profitability, from $1,266 million in the September 2015 quarter to $1,107 million in the December 2015 quarter.

“This decrease in profits is underpinned by a decrease in non-interest income and lower interest margins,” says Kensington.

The reduction in non-interest income for this quarter is largely attributed to a decline in trading income and unfavourable fair value movements of financial instruments. Interest margins also remain tight in a highly competitive environment, which has led to a further 4 bps weakening in interest margins - down to 2.21% in this quarter.

The latest FIPS Quarterly also reported that total bank assets reached yet another record high in the December quarter, increasing from $440.97 billion in September 2015 to $443.01 billion in December 2015, and continue to grow at a steady pace. This growth was instrumental in maintaining the banking sector result.

The global share markets experienced their worst start to a year on record in 2016; with stock sell-offs amidst global growth concerns and falling oil prices. However, the major indices recovered to varying degrees and by the end of March 2016 the US indices returned to broadly the same levels as before.

John Kensington says that while the global economic outlooks remains uncertain, “the local economy remains buoyant,” delivering growth at circa 2-3% for the past five years.

Key findings from December 2015 FIPS Quarterly:

  • The December 2015 quarter saw a reduction of profitability for the banking sector, from $1,266 million in the September 2015 quarter to $1,107 million.
  • Reduction in non-interest income, down by 31%.
  • Total assets increased from $440.97 billion on September 2015 to $443.01 billion in December 2015.
  • Local economy remains buoyant delivering growth at circa 2-3% for the past five years.

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