Savers slowly capitalise on high interest rates - BNZ CEO Dan Huggins

BNZ's half-year net profit was down 5.3 per cent to $762 million, as it competes for business in a sluggish environment. Photo / Alex Burton

Savers appear to be missing out on higher interest rates by keeping their money in transaction accounts rather than in term deposits.

Speaking to the Herald, BNZ chief executive Dan Huggins said about 46 per cent of deposits at the bank are in term deposits - a rise from 41 per cent a year ago, but still not close to the 56 per cent mark pre-Covid.

BNZ’s experience aligned with that of the wider banking industry.

In March, 48 per cent of bank deposits were in term deposits - a rise from 40 per cent in March 2021, but a portion below the 55 per cent mark hit in March 2019.

The remaining half of deposits were fairly evenly split between savings and transaction accounts.

The major banks are currently offering term deposit rates of around 5 or 6 per cent - much more than during the pandemic, when these rates fell below 1 per cent.

The shift of funds to accounts that pay more interest had a dampening effect on BNZ’s profitability in the six months to March.

The bank’s statutory net profit fell by 5.3 per cent, when compared to the same period the prior year, to $762 million.

Its net interest margin slipped to 2.37 per cent (which is still relatively high) from 2.45 per cent.

Huggins expected the shift to term deposits to continue, noting the portion of deposits in higher interest earning accounts wasn’t as high as it was pre-Covid, when interest rates were lower than they are now.

He described the bank’s books as “resilient in a subdued environment”, noting banks are really having to compete for business.

BNZ’s total lending increased by 2.4 per cent in the six-month period, with business lending growing by more than home lending (3 per cent versus 1.9 per cent).

The value of the deposits held by BNZ rose by 1.9 per cent.

BNZ’s operating expenses rose notably, by 11.1 per cent, to $641m compared to the same period the prior year.

It spent more on salaries, technology and complying with the Reserve Bank’s outsourcing policy, which requires large banks to ensure they’re able to carry out functions outsourced to third parties.

While there are pockets of borrowers struggling in the high interest rate, low growth environment, stresses didn’t materially affect BNZ’s bottom line.

It booked $71m of credit impairments, a decrease from both the prior six months and the same period the prior year.

“While easing inflation is encouraging, it is expected to remain outside of the Reserve Bank’s target band until the end of year,” Huggins said.

“Economic conditions are likely to remain challenging until there is a material reduction in interest rates.”

Jenée Tibshraeny is the Herald’s Wellington Business Editor, based in the Parliamentary press gallery. She specialises in government and Reserve Bank policymaking, economics and banking.