Covid-19 takes 20% from bank profits

New Zealand’s banking sector profits dropped 20.4 per cent in the first quarter of this year, as Covid19’s first effects began to be felt.

KPMG has released its latest Financial Institutions Performance Survey, which shows the sector’s profits fell $229.6 million in the three months to March, compared to the December quarter. That was driven by a significant increase in impaired assets.

As a whole, New Zealand banks made $895.6m in the first quarter.

KPMG said the full impact of the crisis would be revealed over the next three or four quarters.

‘‘New Zealand is fortunate for two reasons: that comparatively, the New Zealand banking sector was in a strong position going into this crisis; and that the Government, Treasury, Reserve Bank of New Zealand, and the sector as a whole, are all working together to guide the country through the ongoing disruption,’’ said John Kensington, KPMG head of banking and finance.

Financial services were largely classed as essential services and allowed to continue to operate through the lockdown.

Kensington said the banks had dealt with an influx of customer queries about mortgage deferrals and other hardship assistance once support packages were announced.

But the report said, while the initial ‘‘flood’’ of inquiries had passed, it was expected that the number of bank customers in hardship would continue to increase.

Operating expenses went up during the quarter by $129.2m, or 8.9 per cent. This was mixed across the sector with some banks reporting reduced operating expenses, such as ASB down $27m and some with increased costs, such as BNZ up $166m.

Loans increased by 1.27 per cent.

‘‘The visible impact of the Covid-19 pandemic has only just started to be seen on the sector result and there is no doubt there will be further challenges to come,’’ Kensington said.

‘‘What no-one can say with certainty is the form of the recovery – will it be a V, a W, or some other shape? So many unknown factors impact the answer here.

‘‘Will there be a second wave, when will local and global borders reopen, how much is dependent on a vaccine and when can we expect one? What is clear is that this is uncertain, and the new normal is causing people to reassess how they act across all aspects of their lives and there will inevitably be a ‘reset’ of all the ways we interact.’’

KPMG said the full impact of the crisis would be revealed over the next three or four quarters.