Bank profits jump but Kiwis not borrowing
Banks recorded strong profits last year but Kiwis are not keen to keep borrowing, according to a new report by an accounting firm.
24 April, 2012
KPMG's 25th edition of its annual Financial Institutions Performance Survey (FIPS), which surveyed all registered banks and major financial institutions in new Zealand, showed lower levels of bad debt contributed to the booming profits.
And the firm thinks a lower appetite for borrowing from banks could continue into the near future.
John Kensington, the head of financial services at KPMG, said the global financial crisis was a "wake up call" for Kiwis and they are unlikely to step up borrowing because they are still worried about their overall debt levels.
"New Zealanders have traditionally borrowed a lot of money - and perhaps over borrowed - and perhaps we can't go on every time we want something using 70 cents in the dollar overseas to fund that," he told TV ONE's Breakfast today.
He said it is good New Zealanders are sorting out their finances, but it can lead to lower growth in the banking sector as financial institutions make their money from the interest on lending.
But despite a drop-off in borrowing, KPMG's report said the increasing number of mortgage holders switching from fixed to floating or variables mortgages is helping banks' profits increase.
"This trend is positive on banks' bottom lines as the cost of servicing fixed interest loans is higher than variable loans and the margins on variable loans tends to be better," it said.
Combined net profits from the country's trading banks increased to $3.3 billion in 2011 from $2.8 billion in 2010 - but Kensington said the financial crisis is not yet behind them.
"It's a large number when it is taken on its own, but when it's compared perhaps to their asset base and the amount of return they're making over their assets, it's a low number."
He said profits for banks are a "good thing", because it shows the banking system is in good health and the Government will not need to make a bailout.