23 Sep 2015

Banks edge into the green

11:39 am on 23 September 2015

Economic headwinds are proving to have little impact on the growth in the profits of the main banks - and that has one financial analyst wondering what it would take to stymie their earnings.

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Photo: 123RF

A report by the accounting firm KPMG showed the sector's profit edged up $9.8 million to total $1.259 billion in the three months to June, with margins rising and offsetting a lift in expenses.

Assets hit record levels, rising from $412.4 billion at the end of the March quarter to $435.9 billion at 30 June 2015.

KPMG's Head of Financial Services John Kensington said high demand for residential mortgages and cash-strapped farmers borrowing more, remained the drivers of profitability, which he said was likely to keep on growing.

"These banks' balance sheets are so big, they're borrowing at 3 percent .. lending at 5, it is a big balance sheet to make a small margin but that does convert to a large profit, and if that balance sheet does grow at only 5 or 6 percent, that is still big profits overall."

Auckland's housing market was a growth area for banks, and Reserve Bank efforts to curb risky lending was unlikely to dampen earnings growth, Mr Kensington said.

"What you might see, if the market came off a little bit, it might have a negative impact in the sense that because the prices were low, banks were lending a little bit less to each individual person who is making a purchase," he said.

"If those prices did come off, the ability to purchase a house would open to more people."

Meanwhile, the peer-to-peer lending sector appeared to be gaining traction, with Financial Market Authority licensing lending service Squirrel during the quarter.

It's the third such lender in the field, and while they were not a major threat to the banks, they could be a disruption, Mr Kensington said.

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