Report determines factors contributing to increase in mortgage lending
Banks in New Zealand continue to recover a year after the COVID-19 pandemic hit the country, with the latest data pointing to solid mortgage growth as the main driver of bank profit growth.
KPMG’s Financial Institutions Performance Survey found that profits for the quarter ended March 2021 increased by 20.69% to $1,642.9 million from the $1,361.2 million profit in December 2020 – a record profit for banks for a quarter.
The report pointed to an increase in lending as the main driver, up by 1.86%, combined with a slight increase in margin. Other factors that influenced bank profit growth included an increase in non-interest income (up 64.8%) and the reversal of previously incurred loan provisions.
The 1.86% lending growth across the sector may seem low, but KMPG head of banking and finance John Kensington said it has several underlying components.
“While there has been strong mortgage lending growth, this has been offset by reduced corporate, commercial, and consumer lending,” Kensington said. “In addition, some banks have seen significantly greater lending growth than others, and the 1.86% is an average.”
Read more: Are NZ house prices showing signs of stabilising?
KMPG’s report revealed a record-high of $10 billion in new mortgages in March 2021 alone. Factors contributing to the increase in mortgage lending included housing demand outstripping supply, record-low interest rates creating affordability, and the continuation of remote working for many New Zealanders, along with the “fear of missing out” (FOMO).
While this quarter’s solid profit is a positive sign for the economy, KPMG warned about global uncertainty and multiple indicators of volatility in the market.
“Looking forward, I expect some of the trends we’ve seen in this quarter’s report will continue. Non-interest income volatility and the reversal of provisioning are likely to carry on, and, hopefully, so too will the stronger economic signs,” Kensington said. “The only certainty remains, however, that nothing is certain.”
