ANZ NZ growth still solid

ANZ's New Zealand division continued to produce solid underlying profit growth in the first half as it grew market share in mortgage lending and deposits, while also increasing its net interest margin slightly.

ANZ NZ's cash profit rose one per cent to NZ$605 million in the first half from the same half a year ago as the expiry of credit impairment write-backs in the previous corresponding half offset almost all of an eight per cent increase in profit before provisions.

New Zealand's biggest bank, which has strengthened its market position and slashed its costs over the last three years after merging its ANZ and National Bank brands and systems, grew its home loan market share nationally to 31.2 per cent from 31.0 per cent.

ANZ's share of mortgages in the two biggest and hottest markets of Auckland and Christchurch has increased since the September 2012 merger, with the Auckland share up to 30 per cent in the first half from 29 per cent two years ago.

ANZ NZ chief executive David Hisco told Banking Day in an interview that ANZ had simplified its mortgage products and made growth in mortgages in those cities a priority.

"We've always been underweight in Auckland and Christchurch over the years, but we've fixed that and we are writing our fair share of mortgages in those towns now," he said.

Hisco said Auckland house prices were rising quickly, in part because of record high net migration of over 50,000 per year, with more than half settling in Auckland.  

The Reserve Bank of New Zealand warned last month it was concerned about the risks to financial stability from double-digit house price inflation in Auckland and has signaled new Macro-Prudential measures to calm lending.

Hisco agreed Auckland house prices were rising faster than wages and were "heavy", but that borrowers had plenty of equity and there were few signs the drivers of the high inflation were subsiding.  

"It's like adding 100 people a day to the Auckland housing market. That's Monday to Friday 100 new people fronting up and saying 'what's for sale'," Hisco said.

"That's a lot of pressure on the market place unless you're building houses at the same rate or something else is changing, so it's hard to see how that will ease," he said.

ANZ's net interest income rose six per cent to NZ$1.241 billion in the half year, thanks to a six per cent rise in lending to NZ$99.5 billion and a rise in its net interest margin to 252 basis points from 249 basis points in the corresponding half a year ago.

ANZ cited lower wholesale funding costs for the improvement in the margin, which would have been larger if there had not been such hot competition for fixed mortgages, which are lent at lower margins than floating mortgages.

ANZ's cost-to-income ratio improved again to 40.1 per cent from 41.3 per cent in the previous corresponding half as expenses rose only two per cent at the same time as a six per cent rise in operating income.

Hisco would not disclose ANZ NZ's modelling of the potential increase in capital required if the Reserve Bank imposed higher capital requirements for rental property mortgages from July 1, as is widely expected.