NZ banks accelerate lending in June quarter as bad debt fears subside
By Paul McBeth
Sept. 19 (BusinessDesk) - New Zealand's nine major lenders boosted lending at the fastest quarterly pace in almost two years as fears over bad debts subsided.
Banks canvassed in KPMG's quarterly financial institution performance survey increased gross loans 1.6 percent to $412.21 billion in the three months to June 30 - the biggest quarterly credit expansion since September 2016. Heartland Bank led the way at 2.69 percent, while Bank of New Zealand expanded its loan book 2.01 percent in the quarter, the most of the big four.
The lenders reported net profit of $1.42 billion, of which ANZ Bank New Zealand, BNZ, ASB Bank-parent Commonwealth Bank of Australia and Westpac New Zealand dominated with $1.34 billion. That compares to $1.19 billion in the June 2017 quarter, when the big four generated the same level of earnings. The year-earlier period included a $32 million loss for state-owned Kiwibank while the remaining New Zealand minnows posted combined profits of $37 million.
The quality of lenders' loan books improved in the latest period, with the ratio of impaired asset expenses at just 0.05 percent of gross loans, compared to 0.17 percent in the March quarter.
"Following a minor setback last quarter, asset quality appears to have recovered, with results showing lower impairment expense and relatively stable provisioning," KPMG head of banking John Kensington said. "This trend indicates that the downward spike in the previous quarter was likely driven by a variability of results rather than a clear signal of a turning point in the market cycle as speculated."
Still, Kensington said provisioning levels were still at higher levels and could be an early indicator of change.
Banks increased their riskier mortgage lending this year after the Reserve Bank loosened restrictions on high loan-to-value ratio finance from January. That's seen growing appetite to back the government's KiwiBuild policy and first-home borrowers in general. Kiwibank is pitching loans to buyers with less than a tenth down and ASB says some borrowers may need only a 5 percent deposit.
The lenders clamped down on costs in the latest quarter. The ratio of operating expenses to operating income fell to 39.21 percent, compared to 40.95 percent in the March quarter and 44.82 percent a year earlier. Net interest margins shrank 10 basis points to 2.1 percent, although they were 7 basis points wider than a year earlier.