Its quarterly Financial Institutions Performance Survey (FIPS) shows profits in the June quarter were $1.73 billion, slightly shy of the record set in the March quarter.
The figures were even more dramatic for net income from interest payments. These rose 7.6% – reflecting the highest net interest margin for each of the big five banks since June 2019.
The KPMG survey says this might have been due to more borrowers rolling off their historically low fixed interest rates for their loans.
However, the good days might not last, according to KPMG's head of banking, John Kensington.
“It is hard to believe this (strong profitability) will continue, given the current economic environment,” he said.
“The sector result seems immune from the combined impact of inflation, rising interest rates, supply chain issues, regulatory impacts on lending volumes and a decrease in confidence.”
In a development that appears to support these concerns, the survey found falling loan volumes at the banks.
The figures revealed that despite house prices falling by 7.9% since November 2021, new mortgage lending was down 29% year-on-year.
It suggested this might be due to rising interest rates and the continued effects of the Credit Contracts and Consumer Finance Act 2003 (CCCFA).
Other possible culprits were tighter loan-to-value restrictions, weaker population growth and strong building activity.
In the meantime, people were being careful to prepare for difficult times.
“Households and businesses have been focused on maintaining their loan repayments despite facing cost of living challenges,” Kensington said.
“It remains to be seen whether they will be able to keep this up.”
In another negative development, the survey found house prices were not falling fast enough to offset higher interest rates.
“Some have estimated that the average annual income now required to purchase a home is $142,000, up from $135,000 in November 2021,” the KPMG survey wrote.
Breaking down the numbers further, the report found a $227 million increase in the banking sector’s net interest income, which was offset by a $148 million increase in operating expenses. There was a $37 million decrease in non-interest income and a $58 million increase in tax expenses.
The rise in net interest income was primarily driven by an expansion of net interest margins across a range of banks.
The net interest margins of the big five banks were the highest that they have been since at least June 2019, with increases of approximately 10–30 bps between March 2022 and June 2022 alone.
Impaired asset expense in the June 2022 quarter remained relatively flat compared with the prior quarter at $52 million.
There was anecdotal evidence of credit quality coming under pressure, but there had yet been no increase in arrears and impaired loans.
However the report suggested this could be difficult to maintain in the current economic environment.
“Both households and businesses are focused on maintaining their loan repayments despite facing cost of living challenges,” the report said.
“Whether they are able to keep these repayments up throughout the rest of the year, and the impact this would have on the banking sector, remains to be seen.”