Bank profit stalls under housing pressure

New Zealand’s slowing housing market is putting pressure on bank profits.

KPMG’S latest Financial Institutions Performance Survey shows the banks’ combined profit dropped 2.85 per cent over the first quarter of this year, to $1.2 billion.

John Kensington, head of banking and finance at KPMG, said it was a reflection of competition in the market and international geopolitical uncertainty.

‘‘A common theme across the sector is continued investment in technology enhancements to improve both customer delivery and productivity to meet performance objectives,’’ he said.

There was only a 1.19 per cent increase in the amount the banks lent in the quarter, the slowest rate of growth in three years. Interest income was down 2.5 per cent, or $124.3 million.

Five of the nine banks that responded to the survey reported a profit lift.

Kiwibank had the largest percentage decrease, with a profit drop of 37.1 per cent, or $13m.

ANZ had a $63m increase in profit. ANZ, ASB and Bank of New Zealand all appeared to switch to cheaper forms of funding in the quarter.

Kensington said the housing market played a key role in the banks’ fortunes. ‘‘It’s a big part of their business and the housing market has cooled down.’’

A drop in profits was unlikely to encourage banks to loosen lending restrictions, he said.

They were bound by set loan-tovalue restrictions administered by the Reserve Bank, and the Australian-owned banks will come under new rules next year that will reduce their ability to borrow from their parent companies.