KPMG's annual Financial Institutions Performance Survey (FIPS) highlights another year of record profit from New Zealand's banks just days before the Commerce Commission is due to release the draft report in its market study into personal banking services.
According to the FIPS, annual net profit after tax across NZ banks rose $20.2 million, or 0.28%, to $7.21 billion having burst through the $7 billion barrier for the first time last year following a $1.06 billion rise. The 37th annual FIPS covers the 12 months between October 1, 2022 and September 30, 2023.
The profit rise comes with net interest income up $2.22 billion, or 16.89%, to $15.34 billion. Much of this increase was offset, however, with non-interest income down $1.09 billion, or 33.07%, to $2.21 billion, operating expenses including amortisation rising $0.56 billion, or 8.85%, to $6.91 billion, and impaired asset expense up $0.49 billion, or 339.30%, to $0.64 billion.
The banks' combined net interest margin, measuring the difference between what banks borrow money at through the likes of deposits and what they lend it out at, rose 24 basis points to 2.34%.
Market study & select committee probe
The Commerce Commission is due to issue the draft report in its market study on retail banking competition focusing on deposit accounts and home loans, on March 21.
The Coalition Government's also promising a select committee banking inquiry, which Commerce and Consumer Affairs Minister Andrew Bayly says could look at how to encourage banks to lend more to "productive" sectors of the economy rather than having such a big focus on "unproductive" housing lending.
The FIPS shows housing lending continues to grow as a percentage of total NZ bank lending, reaching 69.94% as of the end of September 2023. (See chart lower down this article). ANZ, NZ's biggest bank, has 72% of its total lending in the housing sector. (Also see our Of Interest Podcast episode on why banks love housing so much here).
Annual profit performance across the big four banks was mixed, with ASB and BNZ recording increases, and ANZ and Westpac decreases. ASB's rose $164 million, or 11.29%, to $1.617 billion, and BNZ's rose $95 million, or 6.72%, to $1.509 billion. ANZ's dropped $128 million, or 5.57%, to $2.171 billion, and Westpac's fell $114 million, or 8.78%, to $1.184 billion.
Net interest margins & funding costs rise
In terns of net interest margins, ASB's rose 36 basis points to 2.48%, ANZ's rose 21 basis points to 2.35%, Westpac's rose 31 basis points to 2.32%, BNZ's rose 23 basis points to 2.42%, and Kiwibank's increased 33 basis points to 2.49%.
Banks' funding costs also rose, up 214 basis points to 3.49% across the sector. In terms of individual banks, BNZ's funding costs recorded a notable rise, climbing 280 basis points to 4.29%.
Personnel costs rise with Kiwibank & ANZ leading the way
On personnel costs, Kiwibank had a higher cost to average employee than the big four banks for the second straight year, at $150,000 up from $148,000. This follows a 26% increase last year, which Kiwibank's Chief People Officer Charlotte Ward explained here.
ANZ, meanwhile, recorded annual personnel costs of more than $1 billion for the first time, a $26 million year-on-year increase. Total personnel costs across the big five banks rose $264 million, or 8.11%, to $3.517 billion as staff numbers across the big five rose 651 to 26,486. (See more on personnel in the chart below).
Personnel expenses across the whole sector rose $310.73 million, or 8.60%, to $3.925 billion. Among the smaller banks TSB recorded a notable $53.12 million, or 39.11%, increase in operating expenses.
Return on equity (RoE) across the sector dropped 92 basis points to 12.48% with the 0.28% profit increase coming up against a 7.97% rise in total equity. TSB's RoE tumbled 252 basis points to just 2.74%.
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