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Low interest rates not giving big loan book boost

Kiwibank’s low interest rates haven’t been enough to stop its lending growth slowing, the bank’s financial results for the second half of last year show.

Monday, February 25th 2013, 11:51AM

by Susan Edmunds

The bank's loan book, including home loans, business lending and credit cards, increased 3% over the six months ended December 31. 

It was up 6% for the year, from $12.1 billion to $12.8 billion. 

But in the previous financial year, Kiwibank experienced lending growth of 10%. In the same half the year before, lending grew 5%.

The slowdown comes despite aggressive mortgage rate discounting. Kiwibank has consistently offered some of the lowest short-term fixed interest rates.

Asked whether the bank had hoped for higher levels of lending growth given its competitive stance, spokesman Bruce Thompson said Kiwibank was unconcerned.

“We are comfortable with our level of lending. The other banks have responded aggressively to our rapid growth in market share, which ultimately has been good for home buyers.”

Chief executive Paul Brock acknowledged the home loan market was competitive. “I’m proud that Kiwibank has led the way in these areas.”

Kiwibank this month launched its “lowest-ever” rate, of 4.79% for six months, not restricted to new customers.

Kiwibank’s impaired assets to gross loans and advances ratio improved from 0.67%  in June 2012 to 0.43% at December 31, 2012.

Customer deposits now represent 85% of bank funding, up from 80% in the 2011 financial year.

 Kiwibank reported an after-tax profit of $58 million for the second half of 2012.
 

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Westpac predicting rates to rise faster than forecast

In its recently released quarterly economic overview report, Stephens writes that Westpac’s prediction is for 90-day interest rates to rise much faster than either the Reserve Bank or the market expects.

It picks the first move in interest rates to happen in June 2013, when it says the OCR will still be at 2.50%.

By 2014, Westpac expects 90-day rates to be 4%. By comparison, the RBNZ tips them to have barely moved at 2.75% and the swaps market implied pricing puts them even lower, at just over 2.50%.
By 2015, Westpac expects rates to be over 5%.

Stephens’ report said that the Christchurch rebuild would make it hard for New Zealand to avoid substantial inflation.

“The inflation figures suggest that central co-ordination of small to moderate repairs – the bulk of the activity to date – has been effective in limiting construction cost inflation. This is unlikely to remain the case as major repairs and rebuilds take over as the main form of activity.”

He pointed to the fact that new housing in the Canterbury region has already risen roughly 10% over the past year.

Stephens said he expected home loan rates to follow the same trajectory as 90-day rates. They might stay on hold for another year or so but then would have to rise.

“Floating rates may not rise quite as rapidly as 90-day rates because at the moment banks have to pay a higher margin to procure funds from overseas. That pressure might come off.”
But he said it was unrealistic to expect the current historic lows to continue past 2013.

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