Big five banks show 10% rise in profits

ANZ Bank New Zealand together with ASB, Bank of New Zealand, Kiwibank and Westpac reported a 10 per cent increase in profit before tax.

New Zealand's five major banks continued to show strong earnings growth in the second half of their financial years, says international consultancy PwC.

The banks - ANZ Bank New Zealand, ASB, Bank of New Zealand, Kiwibank and Westpac - together reported a 10 per cent increase in profit before tax or $244 million to a total of $2.7 billion in the second half of 2013, PwC said in its latest issue of Banking Perspectives.

The five banks reported core earnings of $2.88 billion in the second half, up from $2.66 billion for the previous six months.

The report covers the reported results for the second halves of the banks' respective 2013 financial years.

PwC said earnings growth was driven by increases in net interest income and other operating income while bad debt expenses fell and operating expenses stayed effectively flat.

Sam Shuttleworth, a PwC partner and banking sector leader, said growth in banking profits mirrored a confident New Zealand economy.

Net interest income showed a 2 per cent lift in the second half of 2013 and increased from $3.7 billion to $3.79 billion.

"Longer term, we don't expect to see any great changes in net interest margin as a largely short-term interest rate re-pricing book should be enough to stop any major decline, while tight competition in the market should prevent any significant increase," Shuttleworth said.

Trading income increased by 46 per cent to $309 million in the second half of 2013, while fee income was down 3 per cent to just over $1 billion for the period.

Bad debt expenses dropped by 13 per cent ($27 million), to $178 million, over the same period which was dramatically below the $1.3 billion peak experienced in the second half of 2009.

"This is a further indicator of a growing economy and that borrowers are servicing their debt at these historically low interest rates," Shuttleworth said. The second half of the 2013 financial year also saw both lending and deposits increase.

"The corporate lending market has recorded its fourth consecutive period of growth with an increase of 2.2 per cent for 2013, while household lending continues to show growth of between 2 per cent and 3 per cent each half year since the first half of 2012," Shuttleworth said.

More mortgage holders moved off floating interest rates to fixed rates, with 44 per cent on floating rates at September 2013, down from 63 per cent in March 2012.