FIPS Quarterly: December 2016

FIPS Quarterly: December 2016

‘Normal transmission resumed’ in banking sector.

John Kensington - KPMG NZ - Partner

Partner - Audit

KPMG in New Zealand

FIPS Quarterly: December 2016

The New Zealand banking sector has resumed its onwards and upwards trajectory in the December 2016 quarter.

KPMG’s latest Financial Institution Performance Survey (FIPS) quarterly analysis to December, reports an increase in net profit after tax (NPAT) from $1.7b in the June 2016 quarter to $1.24b in the December quarter. This followed two previous quarters where key indicators (NPAT, non-interest income and asset impairments) stalled or went backwards.

John Kensington, KPMG’s Head of Banking and Finance, says this increase is much-welcomed news for the sector.

“The interesting dynamics in this quarter are the return of the sector to its upward trajectory, increased NPAT,  increased non-interest income and a reduction in impairment and this achieved off the back of lower asset growth and a further reduction in margin.” 

“Also of note from this quarter is that asset growth in the larger banks was slower than in the smaller banks.”

In late March, the RBNZ announced that the OCR is unchanged at 1.75%. This move was expected by the sector, given that the Reserve Bank’s monetary policy statement in February included an official forecast of the OCR holding at 1.75% until the end of 2019.

The FIPS report notes that the housing market is starting to slow, with a noticeable decrease in sales volume, although it’s yet to be seen whether this cooling will ‘stick’ if demand-supply imbalances are not resolved.

“We’re seeing the beginning of the impact of new LVR restrictions and the major banks excluding overseas income from affordability calculation.”

Overall the New Zealand economy has continued to grow, albeit at a slower pace. KPMG’s annual FIPS survey, released in February, showed GDP growth for the quarter ending 2016 at 0.4%, lower than the previous quarter’s growth of 1.1%.

Key findings from KPMG New Zealand’s December 2016 FIPS Quarterly

  • The December 2016 quarter has seen an increase in net profit after tax (NPAT) from $1.17b in the June 2016 quarter to $1.24b in the December quarter
  • Net interest income increased by $12.32M – driven off the back of a combination of lending asset growth of 1.48%, and margin contraction of 3bps
  • Non-interest income increased by 10.96% to $695M
  • Impaired asset expense decreased by $106.32M to $44.95M
  • Tax expense for the quarter rose in line with the higher NPAT increase.

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