Bank profits dip as operating expenses rise in June quarter

New Zealand bank profits dropped in the second quarter as operating expenses rose, outpacing gains from non-interest income.

Net profit dipped 1% to $1.19 billion in the three months ended June 30 for the country's licensed banks, KPMG's quarterly financial institutions' performance survey (FIPS) showed. Net interest income rose 3% to $2.3 billion and non-interest income rose 6% to $724.9 million but that was more than offset by 14% growth in operating expenses to $165.5 million. Net interest margin gained six basis points in the quarter to 2.07%.

"The banking sector has a continued focus on sustainable and diversified lending but at a lower rate than previously, which is why we're seeing this relatively flat, albeit still profitable and strong, performance," KPMG head of banking and finance John Kensington said in a statement.

New Zealand's lenders have faced shrinking margins over the past year as intense competition for mortgages left them with little wriggle room in boosting interest income while at the same time greater regulatory capital requirements and the prospect of tighter global monetary policy has pushed up their own borrowing costs.

Mr Kensington said the banks were continuing to focus on better-quality lending, with provisioning down 6.8% from the March quarter, and past due assets down 4.9%.

"It would be easy to be a bit gloomy about this result but it must be remembered the base numbers are very strong," Mr Kensington said. "It should also be remembered that New Zealand has one of the strongest, most well-served and competitive banking sectors in the world; this represents a period of consolidation by the banks."

Of the major banks, Bank of New Zealand and Westpac Banking Corp reported rising profit in the quarter, with BNZ up 43% to $276 million and Westpac rising 8% to $255 million. Australia & New Zealand Banking Group saw net profit fall 13% to $406 million, ASB Bank parent Commonwealth Bank of Australia fell 3% to $248 million, and Kiwibank dropped to a loss of $32 million in the quarter, down by $54 million from the March quarter.

For the minnows, TSB Bank saw net profit up 123% to $10.7 million, after it lifted non-interest income 22% and cut operating expenses by a quarter. The Cooperative Bank lifted profit 36% to $2.7 million, as its non-interest income rose 71% to $5.7 million.

Across all the banks, gross loans rose 1.2% to $394.5 billion in the three months ended March 31 and were 6% higher than a year earlier.

(BusinessDesk)