Housing boom pushes bank profits to record $6 billion profit last year – KPMG

Last year was a record high for banks, but they also kicked off a hiring spree, pushing the number of people who could qualify as bankers from 23,052 to 25,074.

Stacy Squires / Stuff

Last year was a record high for banks, but they also kicked off a hiring spree, pushing the number of people who could qualify as bankers from 23,052 to 25,074.

Boosted by record house prices and a boom in home lending, banks recorded their fastest ever earnings growth last year, according to KPMG.

In KPMG’s annual financial sector review, KPMG head of banking and finance, John Kensington, says the record was the result of banks unwinding pessimistic provisions for losses on loans they put in place in 2020 when the Covid-19 pandemic hit the country.

Banks’ after-tax profit increased by $1.99 billion, up 48% from a year earlier.

The banks’ combined profits reached $6.13 billion for the year, marking the first year the sector’s profitability topped $6 billion, Kensington said.

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The write-off of impaired asset spending of $1.69 billion made up the bulk of the rise, Kensington says.

Banks were also boosted by a surge in mortgage lending, but neither the unwinding of expected losses nor the boom in the mortgage market would boost bank performance in 2022.

“Mortgage lending growth has been spurred by the availability of cheap borrowing, allowing banks to lend to homebuyers at surprisingly low rates,” Kensington said.

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“Many New Zealanders, with their love of housing, have borrowed and rushed into the housing market, which has caused house prices to rise by up to 25% in some areas.

“Government policy and support for the economy has had the unintended consequence of contributing to a housing bubble.

“It looks like the start of 2021 was the peak, with many changes to loan and mortgage requirements now applicable and signs of a slowdown in sales and the prices at which they are occurring,” he says.

Home prices rose 27% over the year and combined household mortgage debt rose from $296 billion to $326 billion.

Kensington describes this as “phenomenal growth in mortgage lending”.

By contrast, bank lending to businesses only increased by $6 billion, tilting banks’ combined balance sheets more toward home loans.

Last year was also bad for cyberattacks on banks.

“The banking industry has seen some of New Zealand’s biggest cyberattacks of the year, including the data breach of a third-party file-sharing software application that the Reserve Bank of New Zealand itself suffered in January 2021. “Kensington said.

Both Kiwibank and ANZ have been hit by cyberattacks that have blocked customers from accessing certain online services.

Regulators are watching banks’ cybersecurity more closely.

Last July, the Financial Markets Authority Te Mana Tatai Hokohoko (FMA) issued cyber resilience guidelines for financial advice providers, Kensington said.

The FMA said cyber resilience would be a key objective for it, and banks were required to have business continuity plans that include procedures for responding to and recovering from cyberattacks, he said.

Banks also closed many branches during the year, Kensington says.

John Kensington, head of banking and finance at KPMG, who has been tracking bank performance for 35 years.

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John Kensington, head of banking and finance at KPMG, who has been tracking bank performance for 35 years.

But all the big banks increased their workforces during the year, with ANZ going from 6,937 staff to 7,473.

Overall, the banks’ combined workforce fell from just over 23,000 to just over 25,000.

“There is no longer a need for bank branches as before. Advances in technology as well as managed customer transitions due to Covid-19 lockdowns have allowed banks to close many of their branches or reduce opening hours, while redeploying staff to other areas.

The average customer visits a branch once or twice a year and uses online, mobile or telephone banking services at least five times a week, the online bank told KPMG.

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