The net interest margin for the sector has increased by two basis points to 2.26% for the quarter, with most bank participants seeing an increase in their margin. Fixed lending rates have started to increase over the past quarter, from low levels which were driven due to intense competition.
Non-interest income has continued to be the main driver of the movement in profit between quarters, with fair value movements in financial instruments continuing to have large impacts on the profits in certain entities.
The housing market has continued to grow over the quarter, especially in Christchurch and Auckland. Christchurch is expected to continue this trend as the rebuild continues, while in Auckland, the demand-supply housing equation is still struggling to find equilibrium.
It is still not expected that interest rates increases will be used to help cool the market in the short term, due to their impact on inflation and exchange rates. The RBNZ is indicating it still favours the use of the macro-prudential tools, as shown by the implementation of high loan-to-value (LVR) residential lending restrictions from 1 October 2013.
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