Banks posted all-time record profits in the first three months of the year, a KPMG report shows. The combined $1.64 billion profits were partly the result of banks earning more on every dollar they lent. Banks also benefited from a home loan lending boom driven by huge rises in property prices which have meant house buyers have had to borrow larger amounts to buy homes.
KPMG found bank profits had also been swelled as they scaled back projections for losses on loans as the expected Covid-19 economic crisis has proved less grim than originally expected, with unemployment remaining low. KPMG’s Financial Institutions Performance Survey report showed profit for first three months of the year was up just under 21 per cent from $1.36b in the last three months of 2020. “For the banks, this is a record profit for a quarter,” said John Kensington, head of banking and finance at KPMG. The survey was published a week after a survey from Consumer NZ found most bank customers believed bank profits showed they were overcharging customers.
Kensington said low interest rates, an increase in people working from home, and “fear of missing out” among non-home-owners had all helped drive the home lending boom. Many people had embarked on home renovations to create separate work and fitness areas at home, he said. Sixty per cent of new lending was to people who already owned homes.
Predictions and outcomes
“There were concerns that the housing market would crash with predictions well into the double digits, but in fact the opposite has happened,” Kensington said. “The result was a record-high of $10b in new mortgages in March 2021 alone.” Banks were able to cut costs in the first three months of the year, including through closing more branches, the report says. Their expenses were $20.2m lower in the first three months of the year than they were in the last three months of 2020.Kensington said said Bank of New Zealand had cut its office space after its workers embraced a hybrid work week in which they mixed working from home with working in the office.
Banks were probably going to have to spend more on combatting money laundering and terrorist financing following revelations by a Government taskforce that there were “major gaps” in New Zealand’s defences, he said. Banks would also have to invest in climate risk reporting as new laws requiring carbon transparency came into force, he said. While household lending continued to boom in the first three months of the year, lending to companies was subdued, and people were much less willing to load up their credit cards, or take out personal loans. Banks were competing against unregulated “buy now, pay later” lenders but there were calls for these rival lenders to be brought under responsible lending laws, Kensington said.
Six of the largest nine retail banks had increased the amount they earned from every dollar lent (after their borrowing costs were deducted) in the year to March 30, KPMG found. They were ASB, Heartland Bank, Kiwibank, SBS, Co-operative Bank, and Westpac. But every bank, including ANZ, BNZ and TSB, had increased the amount they earned from every $1 lent in the past six months, KPMG’s analysis showed. Jon Duffy, chief executive of Consumer NZ, said its recent survey of bank customers showed about 64 per cent of bank customers were satisfied with the way their bank treated them. But 66 per cent agreed the profits banks made showed that they were charging too much.