FIPS Quarterly: March 2018
FIPS Quarterly: March 2018
New Zealand banks have experienced an 11.35% decline in profit for the quarter ending 31 March, following the record profit in the previous December 2017 quarter.
KPMG’s latest Financial Institution Performance Survey (FIPS) quarterly analysis has revealed a decline in net profit after tax (NPAT) for New Zealand banks. An increase in net interest income was offset by a decline in non-interest income, an increase in operating expenses and an increase in impaired asset expenses all combining to result in a NPAT drop of11.35% to $1,242m.
Banks saw their net interest income increase by $54m, while non-interest income decreased by $144m from the previous quarter. This was paired with a growth in operating expenses of $16m and impaired asset expenses increasing by $122m.
Total loan growth continued at a slow rate with an increase of 1.04%. TSB has continued to show the strongest loan growth with an increase of 2.95% in the quarter, seemingly at the expense of net interest margin.
"Many in the industry have been foreshadowing an increase in impairment numbers and so the increased impairment is neither unexpected nor severe," says John Kensington, Head of Banking and Finance at KPMG.
Asset quality across the main banks appears to have worsened slightly with provisions and impaired asset expense up for the quarter. Though partly driven by the adoption of NZ IFRS 9, given the increase in individually assessed provisions this could indicate a turning point in the market cycle, or simply a variability in results.
The past quarter has also seen the impact of the new government on the banking and finance industry begin to emerge with Hon. Kris Faafoi appointed Minister of Commerce and Consumer Affairs. Minister Faafoi has taken the lead on discussions in two topical areas, becoming an advocate for the adoption of open banking and leading efforts to introduce caps on interest rates.
"The movement of both profits and impairment will be watched closely in the next quarterly, particularly at a time when global markets and geopolitical factors show some signs of volatility and uncertainty," notes Kensington. "While it might be a pivot point, it’s not yet time to panic as the New Zealand banking sector still remains strong."
Key findings from the survey reveal:
- The March 2018 quarter has seen profits decrease for the New Zealand banking Sector by 11.35%, from $1,401m in December 2017 to $1,242m in March 2018.
- Net interest income increased by $54m while non-interest income decreased by $144m.
- Operating expenses grew by $16m and impaired asset expenses increased by $122m.
- Total loan growth has continued along a slower path with an increase of 1.04%
- Asset quality has worsened with provisions and impaired asset expense increasing.
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