Covid-19: Banking sector bounces back

Photo: RNZ / Dom Thomas.

The country's banking sector has roared back from the pandemic with record profits fuelled by a red hot housing market and a reversal of the provisions made last year for possible losses caused by Covid-19.

Business advisory company KPMG's latest review of the sector showed the total profit of the banks rose 48 per cent, $1.99 billion, to a record collective tally of $6.13b.

Much of the increase came from a $1.69b gain as the banks reversed the money they had set aside for bad and doubtful debts the year before, which did not eventuate.

KPMG head of banking John Kensington says the past two years have been an aberration given a more than 20 percent drop in profits in 2020 as the banks feared the worst.

"As we look back now with the benefit of hindsight, the negative impact of Covid-19 was greatly overestimated, and resulted in provisioning levels that have not been required."

The other big driver of profits had been the insatiable demand for housing finance, which has resulted in a near seven per cent rise in bank lending, while their margins have risen slightly, and cost of funds have fallen.

Kensington says the government's support measures and rock bottom interest rates have driven mortgage demand.

"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."

Profit slowdown

He says it's likely that the strong growth in the bank finances will flatten out as the heat comes off the housing market through higher rates, tighter lending rules, and the dampening effect of the Credit Contracts and Consumer Finance Act on applications and approvals for finance.

"What you'll see is fewer loans written and perhaps not continued growth, it might go flat, it might even go backwards a little and it may be a year when the stars don't align and the banks will have to work harder, it won't fall into their lap like it did last year."

However, even if the volume of business slowed, Kensington expects rising interest rates will likely result in bigger margins for the banks.

He hopes the government will be quick to respond to concerns about the CCCFA's effect on lending, which has resulted in delays in processing and previously good borrowers being refused finance.

Easier rules needed

Kensington says it could be that with a slowing economy through high inflation, disruptions, and rising interest rates that businesses and household living off their own resources might turn to the banks for finance, which a restrictive CCCFA could deprive them of.

"I'd like to see the banks in a position where they can make judgement calls and continue to lend."

He expects banks to continue with their investment in new technology and digitisation of services and products.

Bank branch numbers fell by nearly 150 to 706, although staff numbers had risen more than 2100 to 27,864.

The ANZ remained far and away the biggest bank with more than $181b in assets, with ASB in second followed by Westpac and BNZ. The biggest locally owned bank was Kiwibank in fifth spot.'


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So why can't the Banks...

Posted on 11-03-2022 15:46 | By morepork

... spread some of this joy back to their account holders?


Posted on 10-03-2022 12:00 | By Slim Shady

What a surprise. As I sit here getting significantly worse off by the minute, the banks are rolling in it. Way to go Grant and Jacinda. You da bomb.

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