KPMG’s Financial Institutions Performance Survey (FIPS) reports have provided insights into New Zealand’s financial services sector for over 30 years. Each edition presents industry commentary and analysis on the performance of New Zealand registered banks, together with a range of topical articles from industry experts, regulators and our own business leaders.
Results for the year
KPMG's analysis of the banking sector showed an overall decrease in net profit after tax (NPAT) of 13.0%, falling from $1.77 billion in the quarter ended December 2022 to $1.54 billion in the quarter ended March 2023.
This movement was mainly driven by some of the major banks further increasing their provisions on loans. These rose by 10.4%, from $2.69 billion in December 2022 to $2.97 billion in March 2023. It’s likely that this action is the banks preparing for expected future credit losses that will likely arise from the forecasted economic downturn.
The KPMG Financial Institutions Performance Survey (FIPS) also reports a 2.8% decrease in net interest income, driven by slight reduction in the net interest margins (NIM).
The usually volatile non-interest income was relatively flat compared to the prior quarter, as was operating expenses.
Whether profits continue to decrease will largely depend on whether we’ve come to the end of the interest rate rising cycle, how deep of a recession we slip into, and how this this then flows into the sector’s provisioning.
The sector has also reported an increase in the percentage of loans past due, indicating that they’re starting to see more customers struggling to meet their loan repayments. It’s clear that banks are expecting that their provisioning figures are likely to remain high as households continue to struggle with rising inflation and rising interest rates.
The Reserve Bank is facing a very delicate balancing act with the measures they are putting in place to encourage the right level of economic slowdown. These latest figures show that this next quarter may well be the critical point for assessing what has actually happened
