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Banks raise cheap wholesale funding ahead of Spring mortgage surge

Westpac and ASB Bank’s success at raising wholesale funds at low interest rates should help fuel competition through the traditionally active Spring mortgage market, says KPMG.

Wednesday, September 11th 2019, 10:17AM 1 Comment

by BusinessDesk

In its latest quarterly survey of financial institutions, KPMG notes that Westpac launched a five-year medium-term note issue in July, notionally seeking $100 million but with unlimited oversubscriptions and managed to sell $900 million at an interest rate of 2.22 percent.

After the Reserve Bank’s surprise 50 basis point cut to 1 percent of its official cash rate in early August, ASB Bank launched a five-year bond, also seeking $100 million, but managed to raise $600 million at 1.83 percent.

“Being able to lock in such low levels of funding should help fuel the competitive fires ahead of the traditionally active Spring mortgage market, with the possibility of further record-low mortgage rates being offered,” KPMG says.

The big four Australian-owned banks, Kiwibank and the Cooperative Bank are all currently offering two-year fixed mortgages, the most popular term, at the “special” interest rate of 3.59 percent, according to the GoodReturns website.

KPMG notes that, while New Zealand banks await the Reserve Bank’s final decision on how much capital they will have to hold in future, the Australian parents of the big four New Zealand banks are also being required to hold more capital.

“This reminds us that New Zealand banks are not the only ones to feel the heat on capital,” it says.

A trend that was "more worrying, at least from a New Zealand perspective,” is the Australian Prudential Regulation Authority’s decision to reduce the maximum exposure of Australian banks to their overseas subsidiaries from 50 percent of total capital currently to 25 percent of tier 1 capital.

“On the back of likely increases in required capital from New Zealand subsidiaries, the pressure is being put on these banking groups on both sides of the Tasman."

ANZ Bank is the most impacted because its capital exposure to its New Zealand subsidiary is already near the new limit but the other banks' exposure to their New Zealand subsidiaries is considerably lower.

KPMG notes the Reserve Bank has released a summary of consultations on a new mortgage bond standard and was supportive of the introduction of "a high-grade residential mortgage-backed securities framework."

The new standard "aims to provide a deeper market for these types of securities, allowing both issuers easier access to the liquidity this provides and investors with greater access to more opportunities and greater liquidity," it says.

"This may also result in tying up quite closely with greater levels of capital needing to back bank lending where banks may look to move more of their loans off-balance sheet through such mortgage bonds or other loan-backed securities."

Mortgages currently account for more than 50 percent of New Zealand bank lending.

Tags: ASB KPMG Westpac

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Comments from our readers

On 14 September 2019 at 10:42 am Maxwell K said:
Digressing I know. I do wonder if ANZ is about to float UDC.
As for the amount of capital the banks will have to provide I tend to agree with the Deputy Govenor of the Reserve Bank recent comments at the NZSA Conference in ChCh that we shouldn't place to much emphasis on the consequences they are claiming should the proposed reserve increases become law.

How I wish our govt had the courage to follow suit as in Australia and conduct a royal commission of enquiry into our 4 major banks.

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
ANZ 5.19 4.05 3.95 4.49
ANZ Special - 3.55 3.45 3.99
ASB Bank 5.20 4.05 3.95 4.39
ASB Bank Special - 3.55 3.45 3.89
BNZ - Classic - 3.55 3.45 3.99
BNZ - Mortgage One 5.90 - - -
BNZ - Rapid Repay 5.35 - - -
BNZ - Std, FlyBuys 5.30 4.45 4.35 4.55
BNZ - TotalMoney 5.30 - - -
China Construction Bank 5.50 4.70 4.80 4.95
China Construction Bank Special - 3.19 3.19 3.19
Lender Flt 1yr 2yr 3yr
Credit Union Auckland 5.95 - - -
Credit Union Baywide 6.15 4.95 4.95 -
Credit Union North 6.45 - - -
Credit Union South 6.45 - - -
Finance Direct - - - -
First Credit Union 5.85 3.99 4.49 -
Heartland 6.70 7.00 7.25 7.85
Heartland Bank - Online - - - -
Heretaunga Building Society 5.75 4.80 4.95 -
HSBC Premier 5.24 3.35 3.35 3.35
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.15 3.18 3.18 3.20
Kainga Ora 5.18 4.04 3.95 4.39
Kiwibank 5.80 4.30 4.20 4.64
Kiwibank - Capped - - - -
Kiwibank - Offset 5.15 - - -
Kiwibank Special - 3.55 3.45 3.89
Liberty 5.69 - - -
Napier Building Society - - - -
Nelson Building Society 5.70 4.25 4.15 -
Pepper Money Near Prime 5.64 - 5.44 5.44
Lender Flt 1yr 2yr 3yr
Pepper Money Prime 5.18 - 4.98 4.98
Pepper Money Specialist 7.59 - 7.39 7.39
Resimac 4.50 4.86 3.89 3.94
RESIMAC Special - - - -
SBS Bank 5.29 4.85 5.05 5.49
SBS Bank Special - ▼3.55 3.39 3.89
Sovereign 5.30 4.15 4.29 4.55
Sovereign Special - 3.65 3.75 4.05
The Co-operative Bank - Owner Occ 5.15 3.49 3.59 3.89
The Co-operative Bank - Standard 5.15 3.99 4.09 4.39
TSB Bank 6.09 4.35 4.25 4.69
Lender Flt 1yr 2yr 3yr
TSB Special 5.29 3.55 3.45 3.89
Wairarapa Building Society 5.70 4.85 4.99 -
Westpac 5.34 4.15 4.09 4.49
Westpac - Offset 5.34 - - -
Westpac Special - 3.55 3.45 3.99
Median 5.34 4.04 4.09 4.39

Last updated: 11 November 2019 4:01pm

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