Less property on market, less money available but banks still making billions.
New Zealand banks are unlikely to enjoy the same strong loan growth as they have during the Covid pandemic so far, but tougher economic times may see loans staying on their books for longer. Banks have increased net profit after tax almost 7% from the September quarter to $1.614 billion, getting close to the bonanza $1.643 billion recorded in the March quarter of last year. The banks grew gross loans by 1.63% to $487.620 billion in the December quarter, and by 7.2% in the year to December. Against the backdrop of the ongoing Covid-19 pandemic, high inflation, Russia’s invasion of Ukraine and businesses operating below capacity due to staff shortages, banks are unlikely to experience the same level of loan growth as they have enjoyed.
When you get inflation, and you get rising interest rates, I think loans might be a bit stickier. I think they might stay on the books longer so that the banks might not have the same growth. Whilst low unemployment, at just 3.2% in the December quarter, reduces the risk of a significant number of borrowers not being able to meet their loan repayments, businesses are operating below capacity which helps those in employment. Businesses struggling to get staff will have to pay more which will not improve the balance sheet.
Banks reduced loan provisioning another 5.3% in the December quarter to $2.44 billion. It was the fifth consecutive quarter of net impairment write backs as provisions raised early in the pandemic continued to be unwound. Banks’ combined cost-to-income ratio came in at 39.7% in the December quarter, down from 43.1% in the September quarter. Net interest income increased 3% to $2.9 billion.
So, what does this mean to buying and selling today? The main factor at play today is funding, and whilst we wait for Central Government to Revamp and recycle the CCCFA bill that was ill prepared and ill delivered, the reserve bank continues to wave the interest rate wand, exposing the market to increasing cost of money use.
Don’t expect house prices to rise any time soon, we have a stabilised price environment at play, which may be a relief to property valuers and a problem to spec builders.
Let’s look at the sales from last month:
Hobsonville $837,000 to $2,563,000
Massey $790,000 to $1,350,000
Swanson $1,035,000 to $2,350,000
West Harbour $1,041,000 to $2,765,000
Westgate $850,000 to $1,394,000
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