30 Mar 2012

Banks earning more from lending

1:43 pm on 30 March 2012

Banks margins have continued to creep up.

Reserve Bank figures show net interest margins rose for the third consecutive month in February.

The latest figures suggest banks have benefited from a gradual creep higher in net interest margins and interest income in recent months.

After falling 20 basis points between July and November of last year, banks' net interest margins rose 12 basis points between December and February.

Banks' interest income rose in the first two months of the year after falling through the final quarter of 2011.

Interest expenses held steady in February after falling between September and December.

The rise in margins comes after accounting firm PWC earlier this year predicted an end to fat profit margins for the banks.

It now says avoiding a meltdown in Europe has helped keep a lid on the banks' overseas borrowing costs, while more homeowners moved to floating mortgage rates, which are more profitable for banks.

However, it says recent signs of a pickup in lending growth may lead to more competition between banks for deposits, which could put more pressure on their borrowing costs and eat into margins again.