Banks have bounced back strongly but profits tail off
The seemingly endless run of record bank profits is finally starting to tail off, but ANZ is still carrying the torch.
KPMG's latest Financial Institutions Performance Survey found four of the five main banks made smaller net profits in the three months to March 31 than the previous quarter.
Collective profits were up by a modest 0.5 per cent to $1.15 billion.
ANZ alone accounted for $460 million of that sum, with its 17 per cent rise over the quarter more than compensating for its peers.
KPMG head of financial services John Kensington said the pressures of competition were beginning to impact on the industry.
Loan-to-value ratio (LVR) rules were starting to bite, but an even more significant factor was the stampede from floating home loans to the less-profitable fixed terms.
Reserve Bank figures show two-thirds of homeowners now have fixed loans, a dramatic shift from the 50-50 split just one year ago.
Banks' lending margins reduced slightly during the quarter to 2.25 per cent.
The report noted lenders had managed to protect margins by reducing the shorter term deposit rates paid to savers, even as interest rates rose.
Kensington said there was no doubt that LVRs, rising interest rates and the exodus from floating loans would all further challenge the banks' golden run.
While operating costs were down across the industry, KPMG said there was little scope to trim more fat.
State-owned Kiwibank, which saw the biggest profit decline of 15.4 per cent, saw expenses reach a record quarterly high.
Even ANZ's "stand-out" result was driven in large part by a $91m insurance settlement, relating to its former involvement with two frozen ING funds.
Banks are also unlikely to be able to further reduce their provisions for bad debts, which at 0.44 per cent of all loans are at the lowest level seen since before the global financial crisis.
On the bright side for banks, asset growth remained strong at 1.5 per cent, well ahead of GDP and other measures for the broader economy.
New lending was strongest at The Co-operative Bank and Kiwibank, with only Heartland losing ground as it continued to exit legacy property loans.
Kensington said in general, "on almost every measure the sector is in good heart".
One especially positive sign in the March quarter was upgrades from credit rating agencies, which saw both TSB and Heartland move toward firmer footing.
The mark of approval was a reversal of the "slightly gloomy comments" made by the ratings agencies on the New Zealand economy in the previous quarter, KPMG said.
Taking a longer-term view, bank profits have bounced back strongly from the financial crisis.
Over the past six months, they are 15 per cent higher than the same prior period, and 22 per cent higher on an annual basis.