But any dent in bank profits as a result of the new loan-to-value restrictions is not expected to be significant.
BNZ, ANZ and Westpac have recently released healthy profit reports and Massey University’s banking expert Claire Matthews said that was unlikely to change.
Westpac, which reported a 9% increase in cash earnings to $770 million in the year ended September, said it expected housing credit growth to slow next year. But it said that would be offset by more business credit growth as the economy improved.
ANZ’s full-year results show an 8% increase in statutory profit, to $1.37 billion.
BNZ’s net profit was up almost 20%, to $695 million. Its chief executive warned at the time that the LVR restrictions might have a bigger impact than the Reserve Bank intended.
Matthews said the changes could have an effect on profit in the next set of results but it would not be large. “They weren’t making a huge amount more profit on those loans than normal loans.”
The biggest change would be if banks had been reporting low-equity fees as part of their profit, she said.
Her colleague, David Tripe, said he suspected that was what had been happening in some cases. He said overall the impact on profitability of the restrictions should not be significant. “In the case of some particular banks it may be a little more significant because of the way accounting practises were being applied.”
Sources have said that ASB was including its low-equity fees in its profits. It is due to report a full-year result in February. ASB did not respond to a request for comment on the claim yesterday.
Matthews said the restrictions might slow the rate of lending, but if they had the effect of bringing prices down, banks should continue to do the same number of loans, even if they were not lending as much. “It won’t affect profitability as much as growth.”
She said the higher-equity market was now a key focus for all the major banks. “Not only can they lend as much as they like but the more then lend under 80%, the more they can do over it.”
Spring was traditionally a prime time for bank competition and this year would be no different, she said. “It’s just a slightly different target market.”
