Reserve Bank data shows big leap in bank profits

Saturday, 29 May 2021

New Zealand banks have seen their profits rise, despite the Covid pandemic, data from the Reserve Bank shows.

Registered banks’ combined profits have surged above pre-Covid levels, newly released Reserve Bank data shows.

In the three months to the end of March, the 27 registered banks reported after-tax profits of $1.73 billion compared to $1.53b in March 2019.

After-tax profits in March 2020 dropped to just below $1b as the banks accounted for expected losses on loans as the Covid-19 pandemic threatened households’, and businesses’ ability to make their repayments.

KPMG banking expert John Kensington said banks had been reversing their provisioning for expected losses on loans, but they had also enjoyed a surge in mortgage lending, and had seen their cost of borrowing plummet.

Geoff Bascand highlights some of the risks associated with the current housing market conditions. (First published May 2021)

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In his analysis of the registered banks’ profits in the three months of October, November and December, Kensington said: “The Government support packages were still in place during the quarter ended December 2020, but the banks were starting to feel more confident with the low level of arrears.

“We can see this through the reversing out of the provisioning that they made this time last year.”

KPMG was working on analysing the latest Reserve Bank figures.

In the three months to the end of December, the banks cancelled $135m of provisions for expected loan losses, and cancelled a further $77m in the three months to the end of March, Reserve Bank data showed.

Not all loans have performed well however, and since the start of 2020, the banks have written off $268m of debts owed to them by customers.

As house prices surged, banks have been able to increase their home loan businesses, the Reserve Bank data showed.

In December alone, the registered banks lent just short of $10b, according to Kensington.

New Zealand has 27 registered banks, though the big four of ANZ, ASB, BNZ and Westpac dominate the sector.

Since then, home lending has increased further with $10.4b lent in April alone.

Bank’s collective loan books had risen from $480b at the end of March 2020 to just over $495b at the end of March this year, the Reserve Bank’s figures showed.

PWC banking expert Sam Shuttleworth had also not analysed the new Reserve Bank data yet, but said banks net interest margins- the difference between banks’ borrowing costs and the amount they made from making loans- had stayed stable.

Before Covid struck, the 27 registered banks were paying around $1.5b in interest each quarter to depositors, the Reserve Bank figures showed.

Reserve Bank Governor Adrian Orr has presided over the central bank during the greatest pandemic in over a century.

But as the Reserve Bank cut the Official Cash Rate in a bid to stimulate the Covid-hit economy, banks have had to pay less and less to depositors.

In the three months to the end of March, they paid a collective $596m to depositors, compared to $1.5b in the three months to the end of March 2020.

Despite cutting many of their lending rates, the banks have been able to expand their net interest income, across their now-larger loan books.

In the three months to the end of March 2020, they had net interest income of $2.78b, the Reserve Bank data showed.

In the three months to the end of March 2021, their combined net interest income was $2.96b.

The data also showed banks had been successful in bringing down operating expenses.

Operating expenses in the three months to the end of March were $1.47b, compared to $1.67b in the three months to the end of March.

Despite that, the banks actually paid $801m to their staff in the three months to the end of March, compared to $789m in the three months to the end of March 2020.

Shuttleworth said New Zealand was fortunate to have strong banks.

“When you reflect back on the last year, there was general uncertainty around economic conditions post-Covid, and having a strong banks, with strong balance sheets, has been positive for New Zealand Inc,” he said.