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Warning on borrowing rates

The Reserve Bank's new capital regime will lead to greater increases in borrowing rates than its estimate, economists have warned.

Monday, December 9th 2019, 9:30AM 1 Comment

ASB economists believe the new regime will result in larger increases in bank funding costs and customer borrowing rates than the 20.5 basis points assumed by the RBNZ.

The benefits of the regime assumed by the Reserve Bank "may not be as strong and could even turn into a net cost", the economists warned.

Westpac economists expect rates to increase by twice the RBNZ estimate.

The bank's team of economists, including Dominick Stephens, said: "Like any insurance policy, this [regime] comes with an ongoing cost during normal times. Higher required levels of capital will increase banks’ overall cost of funding, resulting in higher interest rates on loans, reduced lending, and a lower level of economic activity than otherwise."

The Westpac team added: "The RBNZ has estimated that the effects of the new bank capital requirements would increase bank lending rates by 0.2ppts relative to the OCR. Our own analysis suggests that the impact could be twice that much."

Banks welcomed the outcome of the capital review last week, as lenders were given seven, rather than five years, to comply with new guidelines. Banks will also be allowed to use debt instruments as part of their required capital buffer. 

ANZ NZ chief executive Antonia Watson said the final rules were a "result of the consultation process" and would give lenders "clarity".

Watson said: “We agree with the RBNZ that having a sound and efficient financial system is critical to the economic well-being of all Kiwis – the debate was always about how far that went and how that cost would be shared.”

ANZ said changes would be implemented gradually, "bearing in mind the market was competitive for lending".

Tags: ANZ ASB Dominick Stephens Lending mortgages RBNZ Reserve Bank Westpac

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Comments from our readers

On 9 December 2019 at 12:07 pm Andy the adviser said:
A very poor prediction/plan by the banks indeed. If they simply increased their deposit rates (and reduced their margins for a while, and their record profits accordingly) they would attract depositors and meet the RBNZ capital targets quite quickly.

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Lender Flt 1yr 2yr 3yr
AIA - Back My Build 5.94 - - -
AIA - Go Home Loans 8.49 ▼6.19 ▼5.69 ▼5.69
ANZ ▼7.89 6.79 6.29 6.29
ANZ Blueprint to Build 7.39 - - -
ANZ Good Energy - - - 1.00
ANZ Special - 6.19 5.69 5.69
ASB Bank 8.39 ▼6.19 ▼5.69 ▼5.69
ASB Better Homes Top Up - - - 1.00
Avanti Finance 8.90 - - -
Basecorp Finance 9.60 - - -
BNZ - Classic - 6.19 5.79 5.79
Lender Flt 1yr 2yr 3yr
BNZ - Mortgage One ▼7.94 - - -
BNZ - Rapid Repay ▼7.94 - - -
BNZ - Std ▼7.94 6.45 5.89 5.79
BNZ - TotalMoney ▼7.94 - - -
CFML 321 Loans 6.70 - - -
CFML Home Loans 6.95 - - -
CFML Prime Loans 8.75 - - -
CFML Standard Loans 9.70 - - -
China Construction Bank - 7.09 6.75 6.49
China Construction Bank Special - - - -
Co-operative Bank - First Home Special - ▼5.99 - -
Lender Flt 1yr 2yr 3yr
Co-operative Bank - Owner Occ 8.15 ▼6.19 ▼5.75 5.69
Co-operative Bank - Standard 8.15 ▼6.69 ▼6.25 6.19
Credit Union Auckland 7.70 - - -
First Credit Union Special - 6.60 6.10 -
First Credit Union Standard 8.50 7.20 6.70 -
Heartland Bank - Online 7.99 6.69 6.35 6.15
Heartland Bank - Reverse Mortgage - - - -
Heretaunga Building Society 8.90 7.00 6.50 -
ICBC 7.49 6.15 5.69 5.69
Kainga Ora 8.39 7.05 6.59 6.49
Kainga Ora - First Home Buyer Special - - - -
Lender Flt 1yr 2yr 3yr
Kiwibank 8.25 7.19 6.69 6.59
Kiwibank - Offset 8.25 - - -
Kiwibank Special - 6.29 5.79 5.79
Liberty 8.59 8.69 8.79 8.94
Nelson Building Society 8.75 6.69 6.19 -
Pepper Money Advantage 10.49 - - -
Pepper Money Easy 8.69 - - -
Pepper Money Essential 8.29 - - -
SBS Bank 8.49 ▼6.95 ▼6.29 ▼6.29
SBS Bank Special - ▼6.35 ▼5.69 ▼5.69
SBS Construction lending for FHB - - - -
Lender Flt 1yr 2yr 3yr
SBS FirstHome Combo 5.94 5.45 - -
SBS FirstHome Combo - - - -
SBS Unwind reverse equity 9.95 - - -
TSB Bank 9.19 7.09 6.59 6.59
TSB Special 8.39 6.29 5.79 5.79
Unity 8.64 6.29 5.79 -
Unity First Home Buyer special - 6.20 - -
Wairarapa Building Society 8.50 ▼6.50 ▼5.89 -
Westpac 8.39 6.89 6.39 6.39
Westpac Choices Everyday 8.49 - - -
Westpac Offset 8.39 - - -
Lender Flt 1yr 2yr 3yr
Westpac Special - 6.29 5.79 5.79
Median 8.39 6.47 6.10 5.79

Last updated: 12 October 2024 6:37pm

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