Banks are managing their businesses well and that helps support New Zealand’s economic growth said the New Zealand Bankers’ Association in response to KPMG’s Financial Institutions Performance Survey for the quarter to June 2014.
The report showed a normalised increase in bank profits of 6.2 per cent for the quarter.
“Profitability is an important part of the banking sector’s strength. These returns allow banks to continue to invest heavily in New Zealand,” said New Zealand Bankers’ Association chief executive Kirk Hope.
“Last year banks made a direct contribution to the New Zealand economy of $4.5 billion by running their businesses here and employing over 25,000 people. On top of this banks paid $1.5 billion in tax.
“Bank profits are a result of good management. Banks are keeping a close eye on their operating costs. Average operating expenses as a proportion of operating income are down from 50.79 per cent in September 2012 to 41.35 per cent in June 2014. That’s crucial in an environment of low credit growth, which is running around 5 per cent.
“Bad loans remain very low which is another factor in maintaining profitability. This reflects the responsible lending practices of our banks.”
The report also found that competition remains intense among New Zealand banks, especially in the housing lending sector. Competition is also driven by relatively low barriers to new banks entering the market.
“The KPMG report echoes the findings of the World Economic Forum, which has rated our banks as the second most sound in the world after Canada, two years running,” Hope added.