KPMG Financial Institutions Performance Survey

2022 has been a year of phenomenal growth for the non-bank financial services sector, with participants of KPMG's Financial Institutions Performance Survey reporting a combined increase in net profit after tax (NPAT) of 56.82% ($143.24 million) over the year to a total of $395.3 million.

After a couple of years of minimal movement in total assets, this year has seen a return to more normal growth levels within the non-bank sector with total assets increasing by 12.62% ($2.08 billion) to $18.56 billion - which is larger than the growth rate of 7.66% seen in 2019 just before the pandemic hit. Lending growth during the year mirrored the growth seen in the total assets, increasing by 13.22% ($1.79 billion).

The non-bank sector has been able to increase its average net interest margin (NIM) over the last 12 months with a 75 bps increase from 5.32% to 6.07%, even in the current interest rate environment with the recent, rapid increases to the OCR.

Survey participants highlighted major concerns and uncertainty over the path the economy will take going into 2023 and beyond, with inflation and the rise in interest rates at the forefront of discussions. Many noted both the impact on their own businesses and the practicalities of protecting their own margin and profits, alongside the impact on their client base, including the possibility of interest rates rising faster than is ultimately required to combat inflation, resulting in unnecessarily high rates for borrowers to deal with and the very real fear of a recession.

“The next 12 months looks very uncertain, with rising interest rates and rising inflation likely continue for another 6-9 months,” says John Kensington, KPMG Head of Banking and Finance. “It's gone a lot higher and done so a lot faster than predicted, and as a result no one really knows how high it's going to go or when it gets to its peak, how long it's going to stay there.”

A key challenge highlighted by many was regulation, which tends to favour the banking sector over the non-bank sector.

“Regulation is needed, but it needs to be scalable and proportional, so that even the smallest entities can implement it without a massive drain on their resources,” says John Kensington. “It also needs to address an actual issue, not a perceived one, needs to have no unintended consequences, and ultimately it needs to be fit for purpose. An example of how not to do it would be CCCFA and the pain it caused throughout the industry when introduced last year – CCCFA is still causing disruptions to lending in the non-bank sector.”