New Zealand banks posted record profits last year stoked by a housing boom and the robust economic response to the Covid-19 pandemic, according to an annual survey.
Net income across the industry rose 48% to NZ$6.13 billion ($4.2 billion) in 2021, KPMG said in its Financial Institutions Performance Survey released Wednesday in Wellington. The increase included a NZ$1.69 billion benefit from the reversal of impaired asset expenses taken in 2020.
New Zealand’s economy bounced back strongly last year after the Reserve Bank slashed interest rates to record lows and the government spent heavily on wage subsidies and business support. Lenders also benefitted as low borrowing costs fanned an already over-heated housing market.
The economic impact of Covid-19 has been masked by government financial support measures and a slightly unintended consequence of monetary policy which saw significant amounts of cheap funding available for housing, said John Kensington, head of banking and finance at KPMG.
This gave Kiwis the confidence to continue their love affair with housing at a time when many other avenues for spending were curtailed. These factors saw phenomenal mortgage growth.
With the economic outlook more assured, banks were able to reverse the impaired asset provisions they made in 2020 when NZ$1.47 billion was taken off their bottom lines.
With the benefit of hindsight, the negative impact of Covid-19 was greatly overestimated, and resulted in provisioning levels that have not been required, said Kensington.
Looking ahead, tighter rules around bank lending, a slowing housing market and the uncertain impact of the omicron outbreak on the economy are all challenges for the industry, he said.
The Credit Contracts and Consumer Finance Act, which requires banks to closely scrutinize all new lending, has resulted in longer processing times for loans and an increase in declined applications, Kensington said. At the same time, there are signs of a slowdown in house sales and prices, he said.
