Home lending fuels rising bank profits

Mortgage lending has ballooned to record levels as rising national house prices fuel a new wave of borrowing.

KPMG’s quarterly survey of financial institutions showed mortgage lending reached a new high of $227.7 billion, up $8.4b since December.

The lending boon helped the main banks to increase their combined profits to $1.2b after tax in the three months to March, up 8 per cent from $1.11b on the December quarter.

ANZ reported a profit after tax of $416 million for the quarter up 20 per cent, while BNZ’s profit rose 35 per cent to$259m.

Westpac’s profit fell nearly 5 per cent in the March quarter to $239m while ASB’s profit was down 9 per cent to $220m.

Kiwibank made a $29m profit after tax for the quarter, down from $38m in the December quarter.

The sector’s total net interest margin shrank from 2.21 per cent to 2.17 per cent. Net interest margin is the profit on loans.

All banks increased their lending with home lending growing at its fastest yearly rate since June 2008.

Real Estate Institute figures show the national medial house sale price hit an all time high in May of $506,000.

Auckland was no longer the sole driver of New Zealand’s housing market with the median prices for five regions hitting all-time highs, the report said.

QV figures show the national average value for a home increased 14 per cent over the past year – now valued at 43 per cent above the market peak of 2007.

The market was being driven by strong investor demand, low interest rates, Auckland’s halo effect over other regions, and strong net migration.

New mortgage lending by banks increased $1.3b to $7.3b between December and May – mostly driven by investor lending which increased by 34.5 per cent, and owner occupier lending, which increased 14 per cent, according to Reserve Bank figures.

Interest-only loans made up 26 per cent in new mortgage lending and investors made up 50 per cent of all interest only loans issued in May.

One-year fixed term mortgages were the most popular, accounting for 40 per cent of all new mortgages since December.

Floating mortgages made up 23 per cent of new mortgages down slightly.

Reserve Bank data shows in the year to May agricultural lending increased 7.3 per cent, business lending was up 6.4 per cent and housing lending increased 8.5 per cent.

The Reserve Bank said the level of non-performing loans has ticked up modestly with dairy debt rising to $40b. The increase was attributed to the banks providing farmers with working capital.

Banks were taking precautionary steps to reduce their exposure to global and local financial volatility.

For example, in June the four major banks imposed lending restrictions to overseas buyers, which was in line with changes the parent banks were making in Australia.

Last week all four big banks complied with a Reserve Bank request to clamp down on property investor lending by issuing loans to investors only if they had at least a 40 per cent deposit.