The country's banking sector has roared back from the pandemic with record profits fuelled by a red hot housing market and a reversal of the provisions made last year for possible losses caused by Covid-19.
Photo: RNZ / Dom Thomas
Business advisory company KPMG's latest review of the sector showed the total profit of the banks rose 48 percent, $1.99 billion, to a record collective tally of $6.13b.
Much of the increase came from a $1.69b gain as the banks reversed the money they had set aside for bad and doubtful debts the year before, which did not eventuate.
KPMG head of banking John Kensington said the past two years had been an aberration given a more than 20 percent drop in profits in 2020 as the banks feared the worst.
"As we look back now with the benefit of hindsight, the negative impact of Covid-19 was greatly overestimated, and resulted in provisioning levels that have not been required."
The other big driver of profits had been the insatiable demand for housing finance, which had resulted in a near 7 percent rise in bank lending, while their margins had risen slightly, and cost of funds had fallen.
Kensington said the government's support measures and rock bottom interest rates had driven mortgage demand.
"This gave Kiwis the confidence to continue their love affair with housing at a time when many other avenues for spending were curtailed. These factors saw phenomenal mortgage growth off the back of them."
Profit slowdown
He said it was likely that the strong growth in the bank finances would flatten out as the heat comes off the housing market through higher rates, tighter lending rules, and the dampening effect of the Credit Contracts and Consumer Finance Act (CCCFA) on applications and approvals for finance.
"What you'll see is fewer loans written and perhaps not continued growth, it might go flat, it might even go backwards a little and it may be a year when the stars don't align and the banks will have to work harder, it won't fall into their lap like it did last year."
However, even if the volume of business slowed, Kensington said he expected that rising interest rates would likely result in bigger margins for the banks.
He hoped the government would be quick to respond to concerns about the CCCFA's effect on lending, which has resulted in delays in processing and previously good borrowers being refused finance.
Easier rules needed
Kensington said it could be that with a slowing economy through high inflation, disruptions, and rising interest rates that businesses and household living off their own resources might turn to the banks for finance, which a restrictive CCCFA could deprive them of.
"I'd like to see the banks in a position where they can make judgement calls and continue to lend."
He expected banks to continue with their investment in new technology and digitisation of services and products.
Bank branch numbers fell by nearly 150 to 706, although staff numbers had risen more than 2100 to 27,864.
The ANZ remained far and away the biggest bank with more than $181b in assets, with ASB in second followed by Westpac and BNZ. The biggest locally owned bank was Kiwibank in fifth spot.