Housing boom pushes bank profits to a record $6 billion profit last year - KPMG

Monday, 7 March 2022

Bank home loan rates have risen in the past 18 months as the Reserve Bank hiked its official cash rate, to push up borrowing costs to slow the economy.

Boosted by record house prices and a home loan boom, banks recorded their fastest-ever profit growth last year, KPMG says.

In KPMG’s annual review of the financial sector, KPMG head of banking and finance John Kensington, says the record is the result of banks unwinding pessimistic provisions for losses on loans they put in place in 2020 as the Covid-19 pandemic hit the country.

Banks’ profit after tax rose by $1.99 billion, up 48 per cent on the previous year.

Combined bank profits reached $6.13b for the year, marking the first year the sectors profitability passed $6b, Kensington says.

* Banks made record $1.64 billion profits in first three months of the year, KPMG says

Reserve Bank governor Adrian Orr discusses the level of concern about inflation in February.

* Covid-19 makes $1.6b hole in bank profits

Reversing impaired asset expenses of $1.69b made up the bulk of the rise, says Kensington.

Banks were also boosted by a surge in mortgage lending, but neither the unwinding of expected losses, nor the booming home loan market would boost banks’ performances in 2022.

“Mortgage growth was driven by the availability of cheap borrowing, allowing banks to lend to home buyers at astonishingly low rates,” Kensington says.

“Many New Zealanders, with their love of housing, have borrowed and binged on the housing market which has resulted in house prices increasing as much as 25 per cent in some areas.

“The Government’s policy and support for the economy has had the unintended consequence of contributing to a housing bubble.

“It is starting to look like early 2021 was the peak, with many changes to lending and mortgage requirements now enforceable and signs of a slowing of sales and the prices they occur at,” he says.

House prices rose 27 per cent during the year, and household’s combined mortgage debt rose from $296b to $326b.

Kensington describes this as “phenomenal mortgage growth”.

By contrast, bank lending to businesses rose just $6b, tilting banks’ combined balance sheets further towards home loans.

Last year was also a bad one for cyberattacks on banks.

“The banking sector has experienced some of New Zealand’s biggest cyber-attacks of the year including the data breach of a third-party file sharing software application that the Reserve Bank of New Zealand itself experienced in January 2021,” Kensington says.

John Kensington, head of banking and finance at KPMG, defended banks’ high profits.

Kiwibank and ANZ were both hit by cyberattacks that prevented customers accessing some online services.

Regulators are keeping a closer eye on bank cybersecurity.

Last July the Financial Markets Authority Te Mana Tatai Hokohoko (FMA) released cyber resilience guidance for financial advice providers, Kensington says.

The FMA said cyber resilience would be a key focus for it, and banks were required to have business continuity plans that include procedures to respond and recover from cyberattacks, he says.

Banks also closed many branches during the year, Kensington says.

But all the larger banks increased staff numbers during the year, with ANZ going from 6937 employees to 7473.

Overall, the combined workforces of banks went from just over 23,000 to just over 25,000 people.

“There is no longer a need for bank branches like there used to be. Technology advances along with managed customer transitions due to Covid-19 lockdowns have allowed banks to either shut down many of their branches, or reduce their opening hours, while re-deploying staff to other areas.

The average customer visits a branch one to two times a year, and uses online, mobile or phone banking at least five times a week, on e bank told KPMG.