NZ banks expected to report flat profits
AUCKLAND: Halfyear profits at three of New Zealand’s major banks are expected to be flat on the back of a slowing housing market and a squeeze in margins.
ANZ, the country’s largest bank, is due to report its six months to March 31 result today, followed by the BNZ on Thursday and Westpac next Monday.
ASB, whose financial year matches the calendar year, reported net profit after tax for the six months to December 31 of $593 million – a record high for bank.
But Associate Prof David Tripe, a banking expert at Massey University, said ASB and Rabobank had reported increased impaired assets in their last results, which could mean the other banks also had an increase, although he said there was no sign it was an industrywide problem at this stage.
Property price growth has slowed in the last year. Prof Tripe said he expected to see a little bit of asset growth at the New Zealand arms of the Australianowned banks but they could report a squeeze on margins.
‘‘We haven’t seen anything much in the way of interest rate increases but we have seen some increase in funding costs so we may see an impact on margins.’’
The banks managed to hold their margins flat in recent years by pulling in more deposits from local investors. But that could change as the cost of borrowing money offshore rises due to rising interest rates globally.
‘‘Overall, the impact on profits is possibly slightly down. But no big surprises,’’ he said.
John Kensington, partner at KPMG, which produces a sixmonthly report on the banking sector, said he expected the results to be a little subdued on the back of weaker business confidence.
‘‘I can’t think of anything spectacular that will drive it up a long way,’’ he said.
Mr Kensington said New Zealand had been hit by the postelection blues and there was uncertainty over the timing and effect of proposed changes by the Labourled Government.
‘‘It is not easier than it was six months ago and it is not harder but it is subdued.’’
He said provisioning for unpaid loans and advances could rise slightly but that was more thanks to things being good in previous years.
Andrew Bascand, managing director at Harbour Asset Management, said he expected to see some provisioning from the Australian banking inquiry come through in the halfyear results.
ANZ has already said it would take a $A50 million
($53.5 million) hit in its full financial year because of the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
Mr Bascand said lower lending growth combined with a rise in funding costs meant margins were likely to be under pressure.
‘‘Banks are going to say it has been a fairly tough quarter.’’
He said the Australian banking inquiry would make it hard for the banks to increase mortgage rates out of cycle without an increase in the official cash rate.
Mr Bascand said usually banks would be expected to increase rates by 10 to 15 basis points to cover the increased funding costs which had crept up in recent weeks.
But he expected the quality of the loan books to remain strong, as low unemployment continued in New Zealand and Australia.
The banks were also benefiting from there being no sectors under strain, unlike other years in which New Zealand dairy and Australian mining were experiencing a tough. — NZME