BNZ chief executive Dan Huggins has defended the bank’s record profit by saying the figure reflected the size of the organisation.
“We have $131 billion worth of assets invested in New Zealand businesses and when you are a business of that scale you do see these types of numbers.”
The bank reported a net profit after tax of $1.414b for the year to September 30, up 7 per cent on its prior financial year.
This was largely driven by home and lending growth as well as rising interest rates which saw the BNZ increase its net interest income by 14.8 per cent to $2.604b.
It also largely kept a lid on expenses which only rose 1.5 per cent to $1.076b.
BNZ is the third bank to report in the last week. On Monday Westpac NZ revealed a 12 per cent profit increase to $1.047b while last week ANZ reported a 20 per cent boost to its profit which hit a record $2.3b.
The record profits have drawn the ire of Prime Minister Jacinda Ardern who on Monday called on banks making record profits in the billions of dollars amid a cost-of-living crisis to assess their “social licence to operate”.
“Are they demonstrating social licence and commitment to the communities by taking the profits that they are?
“This is not a one-off. We’ve seen them consistently taking record profits,” she told reporters at her weekly post-Cabinet press conference.
Asked about the PM’s criticism of bank profits, BNZ’s Huggins said: “We can all agree a stable and profitable banking industry is really important for New Zealand, is critical for New Zealand.
“When we look at the overall profitability of the industry that is linked to the huge size of the industry. The industry has $600b invested - that’s three times bigger than the capitalisation of the NZX. It’s a very very large industry - it’s also very competitive.
“We have 30 different banks and building societies throughout NZ competing strongly for customers’ business.”
Despite that competition, the big four banks - ANZ, ASB, BNZ and Westpac remain dominant with a more than 80 per cent share of the market.
Critics of the banks have called for the Government to take action by bringing in open banking, bank account number portability and beefing up Kiwibank.
Others have suggested the Commerce Commission be charged with undertaking a market study of the sector.
BNZ’s total loans and advances rose 4.9 per cent to $99.3b while its deposits and other borrowings only grew 0.3 per cent to $78.2b. The bank’s net interest margin was up 13 basis points to 2.15 per cent.
Huggins said the margin rise had been driven by a number of factors.
“When you look at the net interest margin it is a combination of factors that will drive that outcome. That is both balance sheet shape but what also what’s happening with interest rates both domestically and in wholesale markets.”
He said the percentage of deposits made up of term deposits had fallen sharply over the pandemic.
“We would expect that over time that’s going to revert and as that comes back that will start putting pressure [on the margin].”
The bank had also seen a sharp slowdown in home lending with the rise in interest rates and falling property prices.
“Demand is off a lot. That is not unexpected and again we anticipate that weakness and demand for property will continue for a while yet.”
He was confident customers would cope with rising interest rates.
“The customers we are seeing move from those very low rates to higher rates are able to manage that. We have been testing people at rates that are higher than even the rates as they are now.”
Huggins said even when mortgage rates got down to their lowest point - around 2.25 per cent - the bank had continued to stress test borrowers at 6.25 per cent.
“We took a very conservative approach during that boom and that is playing through now with a very high-quality book. Notwithstanding that there are always customers who are going to find it challenging as we come into this period and as people see rates adjust.”
He said the bank had dedicated teams of people working with those customers.
“The message is, call us. We are here to help we have got lots of different ways in which we can help customers. So they should call us and call us early so we can help.”
Huggins said mortgagee sales were a last resort.
“We had eight mortgagee sales last year - so a very low number. If we go back further than that we were around 30, for us we have never had a huge number of mortgagee sales and I don’t see that changing because it is an absolute last resort for us. We work really closely with customers to make sure that doesn’t happen.”
The bank did take an $89 million charge in FY22 compared to a $37m write-back in FY21.
“Our impaired loans are very low so we are not seeing any sort of weakness come through at the moment but we continue to maintain a conservative view in our provisioning to make sure that the bank remains very strong and the balance sheet is very robust to whatever we face in the future.”
The bank’s business lending rose by 6 per cent to $2.5b.
“We have seen good growth in business lending. We supported over 16,500 small and medium enterprises during the year.
“It is challenging for businesses. But over the past 12-24 months we have really seen businesses get their balance sheets in order.
“Generally we are continuing to see good strengths in businesses throughout New Zealand.”
Some sectors like hospitality and tourism continued to do it tough as they struggled to get enough workers to open the number of hours they wanted to.
“We also expect to see some challenges coming through in manufacturing depending on the different types, [we are] seeing some cost increases coming through for those customers so we are working very closely with some of those customers to help them.”
Huggins said the economy had been resilient to date.
“But we are coming into a period of difficult economic adjustment. There’s a number of challenges we need to navigate - the global uncertainty is clearly one of them and we are seeing a deterioration in the global economy and some of our key trading partners.
“There are capacity and supply chain constraints which we are seeing, certainly labour, inflation and interest rates that are impacting our customers and something we will be working closely with.
“But generally we have confidence in New Zealand over the medium term. We are a trading nation and we are producing products that are in high demand around the world. We expect that New Zealand is going to come through this challenging period well.”
BNZ’s parent National Australia Bank made a net profit of A$6.89 billion, up 8.3 per cent on the prior financial year. It will pay a full-year dividend of A$1.51 per share, up A24c.
House prices will be 20% lower in real terms by the mid-2030s than in 2021.