New Zealand's banking sector has posted a collective 2.85% decline in quarterly after tax profit, declining from $1.24billion to $1.2billion, while gross residential loans rose 1.19%.
For the larger banks, borrowing money from overseas became more costly and interest income has shrunk, while for the smaller banks market shares grew, but at the cost of shrinking margins in the competitive market.
KPMG's latest financial institutions performance survey, for the quarter to March, said the country's nine banks experienced a slight dip in profits, reversing the good work of the previous quarter, where they had bounced back from two successive quarters of decreases.
KPMG's head of banking and finance John Kensington said the overall profit dip was recognition of the competition in the market, the slightly uncertain geopolitical times and a reflection on the New Zealand economy on the whole, which he described as ''resilient, going well, but not booming''.
He said the banks' gross loans and advances remained ''relatively stable'' with only a $4.59billion, or 1.19% increase, which was the slowest quarterly increase for three years.
Despite slightly larger loan books, Mr Kensington said interest income for the quarter was down 2.46%, or by $124.3million, which meant competition for quality lending was still healthy.
''We've seen the industry continue to focus on quality lending, which has led to a decrease in total provisioning levels.
''This indicates the banks are generally confident in the
quality of their loan books at the moment,'' Mr Kensington said.
He said the decrease in banks' profits was attributed to a reduction in both net interest income and non-interest income, as impaired asset expenses also increased.
Operating expenditure control continued to be a strong focus for the sector, with a reduction in operating expenses of $34.11million, or by 2.79%, while still aiming to increase their balance sheets.
''A common theme across the sector is continued investment in technology enhancements to improve both customer delivery and productivity to meet performance objectives,'' Mr Kensington said.
Further into the survey, KPMG said commodity prices for the quarter showed no definite trends.
However, prices were hurt in January by a stronger New Zealand dollar, a decline in whole milk prices and decrease in wool prices; due in part by lower demand from China.
''These decreases were, however, offset by marginally higher livestock, seafood and forestry prices,'' KPMG said.
Across all the banks, gross loans rose 1.19% to $389.92billion in the three months ended March 31, and were 7% higher than a year earlier, BusinessDesk reported.
Margin shrinkage was seen most acutely among New Zealand's smaller lenders in the March quarter, Kiwibank, SBS Bank, the Co-operative Bank and TSB Bank all posting double-digit contractions. Of the minnows, just Heartland Bank posted a single-digit decline, 9 basis points. Westpac Banking Corp was the only major lender to post double-digit shrinkage at 17 basis points.
Still, in giving up profitability, the smaller lenders largely expanded their loan books at a faster pace than the majors in the three-month period. Kiwibank's gross loans rose 2.3%, SBS gained 5.1%, Co-operative Bank 3% and TSB 4.8%. -
-additional reporting by Businessdesk
