9 May 2016

NZ bank profits likely to remain under pressure

9:17 am on 9 May 2016

New Zealand's biggest banks are expected to see profits under pressure as the low interest rate environment and weak dairy prices are expected to continue for some time.

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The Bank of New Zealand, ANZ and Westpac all released their first half financial results last week, with each reporting a decline in net profit growth, with increased provisioning for bad and doubtful debts, mostly associated with weakness in the dairy sector.

Associate professor at the School of Economics and Finance at Massey University David Tripe said there was nothing on the horizon to suggest interest rates would rise anytime soon.

And he said weak global dairy prices would continue to be a drag on the banks.

"The question that I guess many of us would ask is how soon are dairy prices going to recover and by how much are they going to recover," he said.

Professor Tripe said he would not be surprised if the Reserve Bank imposed additional lending restrictions on banks, not just in Auckland, but in other parts of the country, where supply was not an issue.

"We might see something which stops treating Auckland so much as a special case and puts some other parts of the country on the same sort of restrictions as the Auckland environment," he said.

The Reserve Bank releases its latest Financial Stability Report on Wednesday.