Banking business booms – KPMG survey

New Zealand banks have had the highest growth in profit on record, according to the accountancy and research firm KPMG.

The information has come in the company's Financial Institutions Performance Survey (FIPS) review for 2021.

KPMG says the banking sector recovered strongly from the shock of Covid-19 in 2020.

Its results show net profit after tax (NPAT) up $1.99 billion, or 47.92% from 2020.

This pushed total profits up for the year to $6.13 billion.

KPMG says the key driver for the increase in NPAT was a huge reversal in impairments, based on high level provisions for Covid-related costs in 2020 that turned out not to be needed.

In addition, net interest income rose by 7.07% to $765.62 million, aided by a 1 basis point increase in the Net Interest Margin (NIM) for the banking sector and a 6.55% increase in total bank lending across the sector.

This was fuelled by a strong property and mortgage market.

But while income rose markedly, expenses only inched up, by 0.80%.The head of banking and finance at KPMG, John Kensington, sounded a note of caution over these strong results.

He said the true impact of Covid-19 was blunted by Government policies, including the unintended consequence of monetary policy which saw significant amounts of cheap funding available for housing.

“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.”

Kensington also took a swipe at the Credit Contracts and Consumer Finance Act (CCCFA).

“The changes have resulted in a slow-down in processing times of loans and an increase in declines, meaning at the very time many sectors of society need funding, it is being turned down.”

He said change needed to come from the current review into the rules by the Ministry of Business Innovation and Employment.

“The hope is that a transparent and factual approach is adopted, leading to a balanced outcome,” Kensington said.

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