KPMG's analysis of the banking sector’s quarter, ending December 2022, shows that profits have levelled off after a strong year, with reported earnings of $1.77 billion (net profit after tax - NPAT), unchanged from the September 2022 quarter.
The firm’s Financial Institutions Performance Survey (FIPS) reports a 4.5% ($159 million) increase in net interest income, driven by a 0.6% increase in gross loans and advances of the major banks and most major banks reporting around a 10 bps increase in net interest margin (NIM).
This was offset by a decrease of $166 million in non-interest income. The negative movement represents a 26.6% fall from the previous quarter, resulting largely from lower gains on hedging and lower fees and commissions for the quarter.
Operating expenses, impaired asset expenses and tax expenses all remained relatively flat compared with the September quarter.
Tougher times ahead?
“The result represents a slowing in growth for the banking sector, however the December 2022 quarter’s results are largely driven by the decrease in the always volatile non-interest income. The results show a strong finish to the calendar year, with overall record profits for 2022,” says John Kensington, KPMG's Head of Banking and Finance.
“This demonstrates the resilience across the industry following the Covid-19 pandemic and the resulting global and domestic economic impacts. It also shows the flow-on effect of the large amounts of money that were pumped into the economy during Covid-19 support times. However, it may be that record profits are now behind us as the sector, like the rest of the economy, faces continued high inflation, an OCR that continues to rise, house prices that many believe have yet to bottom out and the distinct possibility of a recession.”
As Kiwi households brace for impact, the market still saw new mortgage lending up 5% on the previous quarter however, perhaps tellingly, it was down 32% on the December 2021 quarter. Collective provisioning rose, indicating that lenders may be starting to see some households struggle to meet their repayments.
“With the OCR increases exceeding all expectations, showing no signs of stopping and with around half of borrowers expected to refix their current mortgage lending rates in the next 12 months, we sadly may see some struggle to meet the higher repayments.”
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