Bank profits fall in first quarter as minnows chase market share over margin

New Zealand bank profits shrank in the first three months of the year as smaller lenders chased market share at the expense of margin.

Net profit slipped 2.9 percent to $1.2 billion in the three months ended March 31 for the country's licensed banks, with five of the nine lenders surveyed reporting smaller earnings, KPMG's quarterly financial institutions performance survey (FIPS) showed. Net interest income shrank 3 percent to $69.03 billion and net interest margin shrank 9 basis points in the quarter to 2.01 percent.

"The overall dip in profits is just a recognition of the competition in the market, the slightly uncertain geopolitical times and a reflection on the NZ economy as a whole: resilient, going well, but not booming," KPMG head of banking and finance John Kensington said in a statement. "A common theme across the sector is continued investment in technology enhancements to improve both customer delivery and productivity to meet performance objectives."

New Zealand's lenders have faced shrinking margins over the past year as intense competition for mortgages left them with little wiggle 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.

That margin shrinkage was seen most acutely among New Zealand's smaller lenders in the March quarter, with Kiwibank, SBS Bank, the Cooperative Bank and TSB Bank all posting double-digit contractions. Of the minnows, just Heartland Bank posted a single-digit decline, 9 basis points. Westpac Banking Corp was the only major lender to post double-digit shrinkage at 17 basis points.

Still, in giving up profitability, the smaller lenders largely expanded their loan books at a faster pace than the majors in the three-month period, with Kiwibank's gross loans rising 2.3 percent, SBS's gaining 5.1 percent, Cooperative Bank boosting loans 3 percent and TSB's loans expanding 4.8 percent.

Across all the banks, gross loans rose 1.2 percent to $389.92 billion in the three months ended March 31 and were 7 percent higher than a year earlier.

(BusinessDesk)