More to come after hit to banks: analysts

AUCKLAND: Bank profits fell by 20% or $229.6 million in the March quarter, dragged down by a rampup in impairment provisions as Covid19 began to bite — but the full economic hit on the sector has yet to be revealed.

KPMG's quarterly Financial Institutions Performance Survey shows net profits across New

Zealand's banks fell from $1.125 billion in the December quarter to $895.6 million in March.

Impaired asset expenses rose by a whopping 732% — up $659.2 million as banks prepared to weather the Covid19 storm.

This was partly offset by higher noninterest income which rose 73%, up $401.9 million, driven by volatility in the market caused by uncertainty about the pandemic.

KPMG head of banking and finance John Kensington said the March quarter was the first to show the impact of Covid19 on New Zealand's banking sector, but the true economic impact of the crisis would be revealed over the next three to four quarters.

Operating expenses across the banks also rose during the quarter by 8.9%, or $129.2 million, largely driven by BNZ's move to capitalise its software.

Net interest income was up 2.15% to $2.619.7 billion but net interest margin growth was flat across most of the banks: only ASB and Kiwibank reported a 10 basis point increase in their margins across the quarter.

NZXlisted Heartland Bank retained the highest margin at 4.5% although this has been eroded over the past year with a 20 basis point drop.

TSB Bank, which has competed strongly on the mortgage front in the past year with pricematching campaigns, had the lowest net interest margin at 1.8%, followed by Westpac at 1.9%.

Mr Kensington said there was no doubt there would be further challenges. — The New Zealand Herald