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New Zealand banks are continuing their run of record profits, dispelling recent market concerns about the official cash rate increase and the impact of LVR housing rules, KPMG head of financial services John Kensington says.
KPMG New Zealand's latest Financial Institutions Performance Survey, released this morning, shows the banks' collective loan book has continued to grow with a 16.86% increase in profits in the three months ended December from the three months ended September.
The main Australian banks are now reporting with National Australia Bank, the owner of the BNZ, set to report today. ANZ and Westpac have already reported significantly increased profits.
Mr Kensington said the strong performance of the banks went hand-in-hand with the more buoyant outlook from New Zealand businesses.
''We're at the stage now where every quarter is a record quarter. The banks are benefiting from the general headwind in the New Zealand economy as dairy, agriculture and other aspects of the economy are starting to do well. All that growth and development comes about because the banks are funding it.''
Results of the quarterly report provided reassurance to the market, given the New Zealand economy had come under criticism recently, he said.
In February, ratings agency Standard and Poor's expressed concerns about risks within the New Zealand market while United States economist Jesse Colombo warned the country was facing a housing bubble.
Those concerns were based on legitimate theories but they did not take into account the realities of the New Zealand environment, Mr Kensington said. There were ''subtle differences'' in the New Zealand market.
''We have a lack of housing supply in New Zealand which is driving prices up. That's different to other countries where the housing market has crashed, like Ireland and the US.
"They were building housing to create jobs and there wasn't enough demand. There are whole tracts of land locked up in those countries where the owners have walked away and the banks don't pursue them.''
The other difference was the Reserve Bank had recognised there was a bubble and was taking measures to pull it back. The bubble was only a problem if it burst, he said.
The latest report was not all good news for the banks with the pace of regulation growing. The new legislation would add further complexity to a sector already struggling under the weight of regulation.
At a time when banks were in a position to lend more, they were still being hamstrung by a multitude of regulation.
Banks would love to invest in frontline staff for revenue-generating roles such as lending, insurance and private banking. But they were having to devote more resources to cope with the increasing levels of compliance and reporting, Mr Kensington said.
• The total net profit from all survey participants in the three months ended December was $1.1 billion, a 16.86% increase from September.
• The increase in non-interest income of $143 million was largely due to favourable fair value movements for ANZ and BNZ and a gain on the sale of overseas equity securities for Westpac.
• Total assets grew to an all-time quarterly high at $380.9 billion, driven by the continued increase in gross loans and advances.