By way of context, in the December quarter, the New Zealand banking sector’s NIM hit 2.37 per cent. The last time it was higher was in 2006, when it hit 2.50 per cent, according to data collected by the Reserve Bank.
BNZ chief executive Dan Huggins told the Herald three factors contributed to BNZ, which is owned by National Australia Bank, reporting such a high NIM.
Firstly, the rising interest rate environment enabled BNZ to earn more on its $11b pool of equity than it could when rates were lower.
Secondly, savers are still opting to keep their money in cheque and regular savings accounts when they could earn higher rates of interest by putting it in term deposits.
Huggins said pre-Covid, about 56 per cent of deposits held by BNZ were in term deposits. This portion fell to 34 per cent during the peak of the pandemic, and has only just climbed back to 41 per cent.
He said BNZ expected savers to continue to shift their funds to where they could earn more, noting the bank was encouraging them to do so by sending them messages, talking to those who visited branches and advertising term deposit rates.
The third factor that contributed towards BNZ’s high NIM was the mix of loans on its balance sheet.
Huggins said strong demand saw the bank increase its exposure to home loans over the past 18 months, all the while lowering its exposure to commercial property, due to lower demand and the bank being more cautious given the economic slowdown.
Comparing the half year to March 2023 to the half year to March 2022, BNZ’s lending rose by 3.3 per cent to $101b, “supported by home loan and business lending growth”.
Customer deposits increased by 1.3 per cent to $75b.
Revenue growth in the period was partially offset by higher operating expenses, which rose by 18.0 per cent to $577m, and higher credit impairment charges, which shot up by 276 per cent to $79m.
Recognising the impact of inflation, and rising interest rates aimed at cooling price rises, Huggins said BNZ was well positioned to support customers doing it tough.
“We know our customers well and understand that many New Zealand households are feeling the pressure of cost of living increases, particularly those with home loans,” he said.
“While we’re confident that our home loan customers are able to manage the current higher interest rate environment, for some, it will be challenging.
“As always, our message to customers is get in touch – we’re here to help.”
BNZ’s cash earnings on average assets rose by 8 basis points to 0.63 per cent in half year, while its cost to income ratio was up 14 basis points to 32.5 per cent.
Its Australian parent reinvested a further $5b in ordinary shares in the bank through a dividend reinvestment.
While some commentators have pointed to the Reserve Bank’s Funding for Lending Programme, which saw it create money and lend it to banks at relatively low rates during 2021 and 2022, as a contributor to banks reporting bumper profits, Huggins downplayed the magnitude of the programme’s effect.
He noted it only accounted for about 3 per cent of BNZ’s funding. Furthermore, the Reserve Bank charges interest on the loans (which have three-year terms) at the official cash rate, which is rising.
As for BNZ’s response to Cyclone Gabrielle and flooding in the upper North Island, Huggins said, “So far, we have committed to waiving $22m in interest costs for customers across our range of support options…
“For businesses, we have made $1b in low-cost funding available to help New Zealanders recover and invest in a more resilient future.”
Alongside this, Huggins said BNZ has backed over 7800 small and medium-sized businesses with new or increased lending in the first half of this financial year.
“We also launched a new funding model to provide innovative Kiwi tech businesses in sectors such as high-tech manufacturing, biotech and aerospace with access to capital to help fund growth and expansion,” he said.
