New Zealand banking profits fell $103 million in the three months ended December but the news is not as bad as it seems.
The September after-tax profits by the banks were at record levels not seen before by the banking sector and KPMG financial services head John Kensington said the December results still reflected a strong and sustainable level of profitability.
In the three months ended December, bank net profits were $1.15 billion, down from $1.25billion in September, according to the KPMG survey of financial institutions.
The December results also came against a backdrop of intense competition for lending, an end to the release or reduction of provisioning, and demonstrated the volatility of the valuation of fair value through the profit or loss instruments, Mr Kensington said.
Across the sector, five of the nine participants recorded growth in their reported profits with the overall decrease primarily attributed to the 9.2% fall by the ANZ and the 7.9% fall in profit by the BNZ.
''The New Zealand banking sector continues to maintain a strong position and with comparably favourable economic conditions, low unemployment and a stable interest rate environment, it is in all likelihood this position will be maintained in the near future.''
Continued confidence in the New Zealand economy had meant economic activity continued to rise with total bank assets maintaining consistent and prosperous growth to achieve record high levels of $402billion across the sector, a $3 billion, or 0.76%, improvement on the September 2014 quarter, Mr Kensington said.
The housing market continued to strengthen, despite the loan-to-value (LVR) restrictions put in place by the Reserve Bank.
The strengthening housing market had led to a 1.5% increase in gross loans and advances within the December quarter.
While it had long been mentioned the effects of the global financial crisis were wearing off, that was now clearly the case with total assets across the sector increasing every quarter since September 2013 with no signs of slowing down as favourable economic conditions prevailed.
KPMG's analysis of quarterly lending showed gross loans and advances had a 1.5% increase in the three months ended December to reach $331 billion - the largest quarterly movement seen in gross loans and advances since the December 2012 quarter.
All entities grew their loan books as confidence in the New Zealand economy continued, Mr Kensington said.
Kiwibank had the best improvement out of all the major banks, increasing from 0.66% to 2.2% for the December quarter.
The year-on-year increase of loans for the sector was nearly 5%.
It appeared the increased efforts for marketing and advertising campaigns paid off for SBS and TSB, which had the best improvement in lending growth rates.
TSB moved from a modest growth of 0.2% during the September quarter to a 3.04% increase in December and SBS went from a decrease of 0.1% in September to a 2.9% increase in December.
However, the sector leader in loan growth in the quarter continued to be Heartland, which had shown exceptional growth in its last three quarters of 3.8%, 3.15% and 4.5%.
In the December quarter, the growth was driven mainly by increases in the business, rural and consumer books, he said.
