The Bank of New Zealand has posted a record net annual profit of more than $1.5 billion as many Kiwis struggle with the cost of living — but what's driving the so-called "bankflation"?
Economic and political commentator Bernard Hickey said the numbers weren't surprising.
"This is what happens when you build your economy around the housing market," he told Breakfast this morning. "Which is built as well on mortgages. We have a bunch of banks that really focus on the housing market and mortgages and they make pretty good money.
"In fact, they have the highest profits in the world relative to the size of their assets and the type of debt they have.
"That is a function of how focused we are on our housing market."
Hickey said New Zealand's housing market is worth 10 times the value of our stock market.
"That's why the banks make so much money."
And the profits are largely climbing year-on-year. Asked if that's purely down to the housing market, Hickey said: "Yes, because they focus so much on housing and they've been able to increase their profit margins as interest rates rise.
"Over the last couple of years — and this is something that's happening all around the world — as those interest rates have risen, there's been an expansion in margins.
"Secondly, the banks have benefited from some very cheap lending from the Reserve Bank in the last couple of years.
"So you could argue that the Government itself has sort of subsidised these bank profits."
He expected a similar result from ASB today.
"When you have an economy which is a housing market with bits tacked on, the main suppliers for that market — and they're the banks — they do very well. Remember, our housing market is worth $1.6 trillion," Hickey said.
"So, those profits? That's what happens when you have a housing market that big."
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