Tightening lending margins do not seem to have affected New Zealand's five major banks which continued to show strong profits and lending growth in the three months ended March.
The PwC banking sector update, released yesterday, showed ANZ, ASB, BNZ, Kiwibank and Westpac reported a combined operating profit before tax of $1.69 billion in the quarter, up 5.9%, or $94 million.
''All in all, this is another strong result reported by New Zealand's major banks behind the backdrop of escalating house prices, predominantly in the Auckland property market,'' PwC partner Sam Shuttleworth said.
''While there have been numerous views on what is driving Auckland property prices, the Reserve Bank has continued to take action to elevate the concerns that a rapid house price correction in the Auckland property market would have on New Zealand's overall financial stability.''
The results of the actions would not be known immediately but the Reserve Bank would not be accused of not taking active steps to lessen the risk of financial instability from a sharp correction in house prices, he said.
Lost within the headlines of continued record bank profits was the decrease in net interest income.
Total gross loans increased by $6 billion, or 1.9%, in the first quarter to $427.3 billion but interest income fell by $40 million to $5.3 billion.
Interest income to average interest earning assets had fallen from 5.9% in December last year to 5.78% in March, reflecting the competitive lending market during the first quarter.
Banks were keen to attract new customers or retain existing customers through low interest rates which had eaten into their lending margins, Mr Shuttleworth said.
Mortgage lending growth for the quarter was 1.72%, up from the previous period's growth of 1.26%. Mortgage lending growth remained lower than that generated in corporate lending.
Total mortgage lending was $193.7 billion at the end of March compared with $190.5 billion at the end of December. Mortgage lending growth was higher than the first quarter last year taking into account seasonality, he said.
The percentage of mortgages with loan-to-value (LVR) in excess of 80% continued to reduce and now represented 14% of total mortgage lending in the quarter compared with 15% of total mortgage lending in December.
Latest figures supported the continued influence the LVR restrictions were having on New Zealand's mortgage market.
Mortgage holders on floating interest rates made up 27% of the mortgage market at the end of March compared with 42% at the end of 2013 and 63% at the end of March 2012.
However, the mix of mortgage funding continued to increase in the medium to long term of fixed interest rates with about 46% of mortgage lending fixed for longer than one year compared with 43% at December, 26% at December 2013 and 15% at March 2012.
That was predominantly due to the banks offering low mortgage interest rates to customers during the first quarter this year in the medium to long term to drive volume growth, Mr Shuttleworth said.
The funding mix remained consistent with the previous quarter.
Retail funding represented about 63% of the banks' total liabilities and highlighted the continuation of the improving funding composition of the major banks.
At a glance
• Five major banks report increased profits for March quarter
• Net increase income fell in the quarterMortgage lending growth grew 1.72%
• Number of mortgage holders on floating rates continue to fall
