FIPS Quarterly June 2023

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.

Financial Institutions Performance Survey

June 2023 Quarterly Results

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John Kensington

Partner - Audit

KPMG in New Zealand

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Results for the quarter

KPMG's analysis of the banking sector showed an increase in net profit after tax (NPAT) of 12.7%, rising from $1.54 billion in the quarter ended March 2023 to $1.74 billion in the quarter ended June 2023.

Net interest income remained somewhat flat this quarter, increasing by 1.4% to $3.63 billion while the usually volatile non-interest income saw a 30.4% rise on the previous quarter up from $443.8 million to $578.7 million.

Only slight increases were seen in net interest income, with the bulk of the increased profits coming from non-interest income and decreases in impaired asset expenses as noted above.

Mortgage rates have continued to rise over the quarter as wholesale funding becomes increasingly more expensive for banks while the Official Cash Rate continues to remain at 5.50%. Nevertheless, new mortgages are still on the rise at $15.9 billion for the June 2023 quarter, an increase of 26% compared to the March 2023 quarter.

Impaired asset expenses fell by 55.1% to $143.7 million following the March 2023 quarter’s expense of $320.2 million. Provisions, however, continue to increase due of increasing arrears.

The increase in profits is primarily due to two factors. “Firstly, there has been a fall in impaired asset expense. It is important to note that although the impaired asset expense has decreased, it’s still the second largest impaired asset expense since the start of the pandemic and has driven a 2% increase in provisions on lending. Secondly, there has been an increase in non-interest income. This is a typically volatile line and has risen this quarter due to greater gains on trading and hedging products

Provisions have been steadily increasing since the start of 2022 as borrowers face challenging economic conditions with rising interest rates and the cost of living.

The June 2023 quarter is the second consecutive quarter in which each of the five major banks have reported an increase in the percentage of loans which are past due, indicating more customers are struggling to meet their repayments. With inflation and interested rates high, if we see this trend continue through the second half of the year, it is likely that we could see further increases in provisions.