Westpac, Kiwibank lead earnings growth among banks in June quarter

Westpac Banking Corp [NZX: WBC] and Kiwibank led earnings growth among New Zealand's banks in the second quarter, as increased lending and wider margins propped up profits.

Net profit across New Zealand's banks edged down to $1.125 billion in the three months ended June 30 from $1.15 billion in the March quarter, though stripping out a one-off insurance settlement by Australia & New Zealand Banking Group, underlying earnings rose 6.2 percent, according to KPMG's quarterly financial institutions performance survey.

Of the country's registered banks, Westpac showed the biggest quarterly gain, with profit up 22 percent to $281 million, followed by state-owned Kiwibank, which lifted earnings 18 percent to $26 million. Bank of New Zealand lifted earnings 5.1 percent to $205 million.

ANZ, the country's biggest bank, reported a 15 percent drop in profit to $390 million, while Commonwealth Bank of Australia's ASB Bank showed an 11 percent fall in earnings to $191 million.

"Profits across the sector have risen again, driven by lending and asset growth, improvements in interest margins, a strong quarter for non-interest income and loan impairment which represents only 8 basis points of gross loans and advances," the KPMG report said. "The slight decrease in overall NPAT is to do with increases in operating expenses and impaired asset expenses slightly offset by the increases in net interest income and non-interest income."

New Zealand's banks have had to contend with intense competition for residential mortgages in the past 18 months after the Reserve Bank imposed restrictions on their ability to write loans with deposits of less than a fifth of a property's value, while four hikes to the benchmark interest rate and the prospect of more increases to come have seen a rising number of borrowers fixing the mortgages, which deliver smaller margins for lenders.

The KPMG report showed gross lending increased 1.2 percent in the quarter to $321.33 billion, and was up 4.7 percent from the same quarter a year earlier, with niche lender Heartland New Zealand and The Cooperative Bank leading the way in the quarter, with gains of 3.8 percent and 2.6 percent respectively.

Net interest margins edged up 3 basis points in the quarter to 2.28 percent, and were up 2 basis points on an annual basis, with Heartland showing the fattest margin at 4.94 percent and biggest improvement of 49 basis points in the quarter. The improvement in margins was helped by cheaper international funding costs and banks largely keeping costs under control.

Impaired assets as a percentage of gross loans increased 7 basis points in the quarter to 0.08 percent, worth about $66.2 million across all lenders.

(BusinessDesk)