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Volatility leads to tighter lending environment

Expect slower lending growth and rising interest rates this year as banks respond to developments in 2016, the latest KPMG Financial Institutions Performance Survey says.

Thursday, February 16th 2017, 12:56AM

by Miriam Bell

The survey shows that New Zealand banks continued to generate healthy profits while also maintaining strong capital ratios in 2016.

At the same time, the banking sector experienced a contraction in profitability as net profit after tax declined by $334.38 million (6.46%) to $4.84 billion.

The single largest factor in this was a reduction in non-interest income of 11.9% ($350.20 million), although increased operating expenditure also came into play.

Lending growth for the banking sector was at its fastest pace in the last eight years with loan books growing by 8.10% to $395.71 billion.

However, lending growth was scaled back in the second half of 2016, due to a range of factors including funding costs, and this is expected to continue in 2017.

Bank executives who participated in the survey said funding pressures from rising interest costs offshore along with other factors like the LVRs will slow lending growth in the coming year.

One clear message to emerge from the survey is that New Zealanders can’t expect lending rates to continue to fall nor to borrow at the same exuberant levels.

The executives signalled that a rise in home loan rates is likely as increased funding costs persist throughout 2017.

Further compounding this are indications that the big four banks are showing less interest in competing for deals in certain areas of the lending market.

One such area is the mortgage market where fewer cash offers and incentives are now being offered than at the start of the year.

According to the survey, the executives said they are looking more closely at the deals they are prepared to lend on and ensuring the deals being funded are ones that will provide an appropriate return at an appropriate risk.

It is about being smarter about who they were lending to as they are still willing to lend if the deal is right and makes business sense, they said.

As a result, the major banks will be focusing lending growth strategies on existing customers and on potential customers with strong opportunities and a solid credit rating.

The survey said this is likely to mean a slight easing of competitive pressure from these banks on certain types of lending.

Additionally, the Reserve Bank and the banks have indicated that the market should expect interest rate hikes in the coming year.

These factors all combine to suggest that the most likely direction for mortgage rates is up.

While 2016 may have been a year of change, the survey indicates that 2017 is expected to bring increased volatility and pace of change as well as the unexpected.

Given New Zealand’s solid and healthy economic outlook, it is increasing geopolitical and global economic uncertainty that will be the biggest driver of this state of affairs.

Read more: 

Banks of the future may offer customers less choice 

Tags: banks interest rates KPMG Lending LVR Reserve Bank

« Banks of the future may offer customers less choiceProfits down for Kiwibank »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.95 3.29
ANZ 4.44 3.10 3.50 3.84
ANZ Blueprint to Build 1.68 - - -
ANZ Special - 2.50 2.90 3.24
ASB Back My Build 1.79 - - -
ASB Bank 4.45 2.55 2.95 3.29
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.55 2.95 3.25
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 4.55 3.15 3.22 3.85
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 1.95 1.85 2.35 2.45
Heretaunga Building Society 4.99 3.80 3.90 -
Lender Flt 1yr 2yr 3yr
HSBC Premier 4.49 2.19 2.45 2.69
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 3.69 ▲2.29 ▲2.69 ▲2.99
Kainga Ora 4.43 2.67 2.97 3.13
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.75 3.34 3.34 4.14
Kiwibank - Offset 3.75 - - -
Kiwibank Special 3.75 2.49 2.49 3.29
Liberty 5.69 - - -
Nelson Building Society 4.95 2.99 3.24 -
Lender Flt 1yr 2yr 3yr
Pepper Essential 4.79 - - -
Resimac 3.39 2.98 2.79 3.29
SBS Bank 4.54 2.69 2.99 3.29
SBS Bank Special - 2.19 2.49 2.79
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - 2.29 - -
The Co-operative Bank - Owner Occ 4.40 2.49 2.89 3.19
The Co-operative Bank - Standard 4.40 2.99 3.39 3.69
TSB Bank 5.34 3.30 3.69 4.04
TSB Special 4.54 2.50 2.89 3.24
Wairarapa Building Society 4.99 3.55 3.49 -
Lender Flt 1yr 2yr 3yr
Westpac 4.59 3.15 3.49 3.89
Westpac - Offset 4.59 - - -
Westpac Special - 2.55 2.89 3.29
Median 4.54 2.68 2.99 3.29

Last updated: 29 July 2021 9:04am

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