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Bank margins under pressure: KPMG

Bank margins are under pressure amid record low interest rates and lenders may not be able to cut mortgage rates much further, according to a new report from KPMG.

Wednesday, April 1st 2020, 10:31AM

KPMG's Financial Institutions Performance Survey (FIPS) suggests there is "increasing pressure" on margins as the official cash rate falls close to zero, at 0.25%. 

The report says deposit funding "has limits which are required to keep the flow of funds, meaning that banks will only be able to reduce the deposit rates up to a certain point".

Speaking to TMM Online, KPMG's John Kensington said the downward pressure on interest rates would make it difficult for banks to drop mortgage rates much further.

"They borrow at a rate, and they need to make a certain margin to cover operating costs. The cost of borrowing, plus the margin, will define where the cost of lending goes. If rates have already been re-pegged since the reduction in the OCR, it's probably as far as they can go down, unless there is a further reduction in global interest rates, which causes their own borrowing costs to go down."

KPMG's FIPS report for the three months to December revealed New Zealand bank profit dropped 6.86% compared to the same period in 2018. Banks made $1.12 billion in the quarter. 

"While this drop in profit was a reflection of impacts on the New Zealand economy from then-current domestic and international events, subsequently we have observed the previously unforeseen impact from Covid-19 have far more immediate and potentially prolonged and significant consequences," Kensington said. 

The report covered the quarter before the Covid-19 outbreak, but Kensington believes banks will face "significant" and "wide-ranging" economic implications". He does not expect credit to dry up for mortgage borrowers, however. 

"The Reserve Bank has been fairly clear. It will support the banks as much as it can in return for them supporting their customers. If banks don't support customers at this time, people won't want to be their customers. They seem to be doing the right thing." 

 

Tags: banks interest rates KPMG Lending Mortgage Rates mortgages

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 5.35 4.49 5.25 5.55
ANZ 5.54 5.15 5.85 6.15
ANZ Blueprint to Build 2.78 - - -
ANZ Special - 4.55 5.25 5.55
ASB Bank 5.35 4.49 5.25 5.55
Avanti Finance 5.45 - - -
Basecorp Finance 6.45 - - -
Bluestone 5.29 7.49 7.59 -
BNZ - Classic - 4.55 5.25 5.45
BNZ - Mortgage One 5.55 - - -
BNZ - Rapid Repay 5.55 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 5.55 5.35 5.94 5.99
BNZ - TotalMoney 5.55 - - -
CFML Loans ▲6.45 - - -
China Construction Bank 5.50 5.40 6.14 6.40
China Construction Bank Special - 4.45 5.19 5.45
Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 4.70 5.20 -
Heartland Bank - Online 4.00 3.85 4.70 4.84
Heretaunga Building Society 5.95 4.80 5.50 -
HSBC Premier 5.49 4.39 5.15 5.39
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 5.25 ▲4.29 ▲5.09 ▲5.35
Kainga Ora ▲5.43 ▲4.57 ▲5.58 ▲5.85
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 5.00 5.55 6.19 6.39
Kiwibank - Offset 5.00 - - -
Kiwibank Special 5.00 4.55 5.19 5.39
Liberty 4.84 - - -
Nelson Building Society 5.95 4.95 5.85 -
Pepper Essential 3.44 - - -
Resimac 4.59 5.60 6.16 6.29
Lender Flt 1yr 2yr 3yr
SBS Bank 5.29 4.69 5.35 5.49
SBS Bank Special - 4.19 4.85 4.99
Select Home Loans 4.09 4.29 4.86 5.09
The Co-operative Bank - First Home Special - ▲4.19 - -
The Co-operative Bank - Owner Occ 5.45 ▲4.29 5.19 5.45
The Co-operative Bank - Standard 5.45 ▲4.79 5.69 5.95
TSB Bank 5.59 ▼5.14 6.05 6.15
TSB Special 4.79 ▼4.34 5.25 5.35
Unity 5.65 ▲4.80 ▲5.50 -
Wairarapa Building Society 5.24 4.55 5.20 -
Westpac 5.54 5.09 5.79 6.09
Lender Flt 1yr 2yr 3yr
Westpac - Offset 5.54 - - -
Westpac Special - 4.49 5.19 5.49
Median 5.45 4.55 5.25 5.52

Last updated: 16 May 2022 9:03am

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