Surge in lending growth for Kiwi banks
Kiwi banks recorded their biggest growth in lending since 2009 in the second half of their 2012 financial years.
Friday, February 1st 2013, 9:00AM
The result may come as a red flag for Reserve Bank Governor Graeme Wheeler, who announced yesterday he would be keeping a close eye on household credit growth.
But bank profits decreased 11% compared to the previous six months, due to increasing costs and strong competition in the lending market.
Customers haggling for better deals were cutting banks’ margins, PwC Partner Sam Shuttleworth said.
““Borrowing rates are dropping as homeowners and businesses aggressively renegotiate interest rates, even in the middle of fixed rate periods. In this competitive environment, the banks are playing ball as they focus on the longer game of increasing the value of their lending books by locking more customers into fixed rate mortgages and an easing of pricing to corporate customers. “
Shuttleworth said banks would need to avoid reducing their interest margins too much, if the banking system was to retain its reputation as a safe one.
New Zealand’s five major banks reported core earnings of $2.453 million in the second half of their 2012 financial years, down from $2.712 million for the previous six months.
Households are locking in fixed-rate lending – 22% of loans are now fixed for more than a year, compared to 15% in March.
Bad debt costs seem to have plateaued at $279 million, compared with $277 million in the first half of the financial year, and have improved 24% year-on-year.
Shuttleworth said that the flourishing Auckland and Christchurch property markets made the outlook positive for banks.
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The OCR ain't going anywhere
The new Reserve Bank governor, Graeme Wheeler, predicts that the official cash rate won't by going anywhere until 2014.
This is clear from the 90-day bank bill forecast graph in the December Monetary Policy Statement. It shows clearly how over the past year forecast increases kept getting pushed down each quarter.
A year ago the bank was predicting the 90-day bill rate would be up at 4.00% by March 2014. That forecast was wound back to 3.3% in March, 3.2% three months later and is now down at 2.8%.
The good news for borrowers is that, asssuming things pan out as forecast, then home loan rates aren't likely to be going up any time soon either.