Top five banks still in the money

Strong earnings at ANZ, Westpac, ASB, BNZ and Kiwibank come on the back of strong lending growth. Photo / Steven McNicholl

Questions on future performance as economic outlook grows less certain.

New Zealand's five biggest banks continued to show strong earnings growth in the first half of the 2015 financial year, but questions are being raised about whether their strong performance can be sustained in a less buoyant economic environment.

Profit at the banks - ANZ, Westpac, ASB, BNZ and Kiwibank - rose 4 per cent on the previous half to a combined $2.4 billion, international consultancy PwC said in its New Zealand Banking Perspectives report.

Core earnings rose 6 per cent to $3.5 billion, driven by increases in net interest income and reduced operating expenses.

PwC banking sector leader Sam Shuttleworth said it was a solid performance, which came on the back of strong lending growth to household and non-household sectors.

"The lift in lending over the last year has generated the lift in net interest income growth and the demand for credit over this 12-month period has been very strong when compared to recent times," he said. "The reduction in operating expenses has also aided the lift in profitability for the period."

But with the economic outlook becoming more uncertain, Shuttleworth said banks might struggle to sustain lending growth, a major driver of profits. Consumers could benefit from those market dynamics as competition in the lending market heated up, he added.

The PwC report came as ANZ New Zealand yesterday reported a 5 per cent lift in profit to $1.3 billion for the nine months to June 30.

Customer deposits rose 7 per cent, while gross lending increased by 5 per cent. Provisions for credit impairments lifted to $58 million compared with a $20 million write-back in the previous comparable period, ANZ said.

Shuttleworth said the slump in dairy prices would put pressure on "loan serviceability" in rural areas, but banks were carefully managing risk in the agricultural sector.

"The banks have demonstrated the ability to work through stressed exposures and if there are any issues in the current environment, expectations are that banks will be there to work through and resolve the matter."

Last week, Standard & Poor's cut one part of the credit ratings of the country's four biggest banks - ANZ, BNZ, ASB and Westpac - over concerns about the ongoing strength of Auckland's housing market.

The Reserve Bank said in May that the potential for a sudden correction in the city's property market had increased. In response, it imposed lending restrictions on property investors that kick in in October.

Shuttleworth said the S&P downgrade was a timely reminder to banks "to make sure everything is appropriately in balance".

"Any downwards pressure on the overall issuer ratings would have impact on the cost of funding for the banks."

See the full banking profit report here: