Kiwibank's lending conservative: Knowles

Kiwibank insists its lending policies are conservative and that it isn’t writing risky business.

A couple of examples of high value home loans which had been turned down by a mainstream bank but accepted by Kiwibank had some brokers wondering whether Kiwibank was operating on very generous credit criteria.

Several brokers speaking at this year's Mortgage Brokers Association conference told such stories.

"In my view they're buying business and buying some reasonably poor quality business," one broker said.

Kiwibank chief executive Sam Knowles says that isn’t so. "There are a couple of areas where we’ve specifically made decisions where we saw market opportunities," he says.

Most banks have drawn organisational lines between residential and commercial lending that he says are arbitrary. "We don’t have organisational lines to draw" and Kiwibank has treated these loans as residential rather than commercial risks, he says.

Such loans are "areas where we think the market doesn’t appear to be rationally pricing risk."

A significant amount of Kiwibank’s lending is re-financing where the borrower has a well-established pattern of behaviour. The bank also insures all loans above 80% of each property’s valuation.

"We generally have a very conservative risk profile across our portfolio – it will be substantially lower than any of the banks."

In its first few months, Kiwibank had to turn down significantly more home loan business than it had budgeted for, but now the average customer is "ahead of our business plan."

Other criticisms levelled by brokers at Kiwibank are that its staff aren't well-trained, they have poor home loan lending knowledge and that the bank's customer service levels are poor.

Knowles notes that all his lending staff trained with the five major banks. "It’s a very good market for training – the banks are highly disciplined."

There’s a very wide range between how much each of the major banks will lend at any given income level. Knowles won’t say where Kiwibank’s criteria ranks, but does indicate his bank may be more willing to lend to low income earners.

But that part of the market isn’t a hotbed of competition. "You don’t compete for low income business. Everyone’s trying to compete for larger business."

Kiwibank has continued consistently signing up 500 new customers a day in the latter months of this year, although it is starting to see some slowdown leading into Christmas, Knowles says.

The volume of its loans business is exceeding its targets. "Our loans advisers are certainly performing well above industry averages."

And Kiwibank is about at industry average in terms of the average size of loan and above where its business case had assumed it would be, he says.