Bank profits plunge 28% to $4.14 billion

NEW Zealand bank profits fell a whopping 28% in 2020 — dropping $1.58 billion to $4.14 billion.

The fall was the largest in the 10year history of KPMG’s Financial Institutions Performance Survey as higher impairment expenses and operating costs took their toll on the banks.

KPMG head of banking and finance John Kensington said while Covid19 appeared to have had a more immediate effect on banks’ net profits than the global financial crisis (GFC), the New Zealand financial system had to date proved to be strong and the banks resilient.

‘‘The difference between now and the GFC is that there has been enormous Government support and banks are now part of the solution — working together with the Government to help customers get through the pandemic.’’

After the GFC, bank profits dipped 1.2% in 2007 and 0.1% in 2008. It was not until 2009 that they plunged, falling 98.8%.

The main driver of the profit fall in 2020 was a 275% or $1.08 billion increase in impaired asset expenses, while operating expenses increased 9% or $486 million.

The average net interest margin fell 14 basis points from 2.10% to 1.96%, net interest income dipping 0.46% ($50.26 million) to $10.83 billion.

Conversely, interestearning assets increased 6.70% ($35.82 billion), all but three of the major banks surveyed achieved an increase in interestearning assets in 2020.

Mr Kensington said the banking sector achieved a record low in funding costs as interest rates continue to drop.

Of the big four banks, Westpac recorded the biggest drop in net profits, which fell nearly 40% to $681 million.

Kiwibank, the fifth major bank, also recorded a drop in its profits of 47% to $57 million.

The three Chinese banks recorded the biggest growth in net profits. Bank of China increased its net profit 392%, ICBC’s rose 212% and China Construction Bank was up 72%.

Of the 20 banks the survey took in, 14 recorded a drop in profits over the year. — The New Zealand Herald