27 Feb 2009

Banks' profit margins increasing

10:16 pm on 27 February 2009

New figures show banks' profit margins are on the increase again while the amount lent to businesses continues to drop.

The difference between the amount banks charge borrowers and the cost to banks of the money they raise domestically is 60% higher than a year ago.

Reserve Bank figures show banks' margins hit 2.6% last month, up from 2.43% in December and 1.63% a year ago.

In addition, the amount loaned to businesses fell in January for the second month in a row.

Lending to businesses peaked in November last year at $80.2 billion, falling to $80.1 billion in December, and $79.9 billion in January.

Business New Zealand chief executive Phil O'Reilly says increased regulation of banks is not the answer.

Mr O'Reilly says any such move may lead to banks making illogical business decisions and thereby increase the risk of bank failure.