ASB dials back high LVR
CBA's ASB has reduced its competitive intensity in the low deposit mortgage market ahead of the Reserve Bank of New Zealand's expected imposition of 'speed limits' on such lending.
ASB CEO Barbara Chapman said banks had already acted to slow the lending growth in mortgages with a loan to value ratio of above 80 per cent and were now ramping up competition for loans below 80 per cent.
"Across the board banks are generally now thinking about high LVR lending and certainly we've dialed it back a bit," Chapman told BankingDay as ASB reported a 12 per cent increase in its cash net profit to NZ$699 million.
That result was driven at least partly by a surge in high LVR lending through late 2012 and early 2013 by ASB, which increased its housing market share to 22.3 per cent by June 30 from 21.9 per cent a year earlier. It grew home lending by NZ$2.9 billion to NZ$40.31 billion over the year and much of that growth came from high LVR lending. Home lending makes up 70 per cent of the Auckland-based bank's loan book.
Chapman said banks were now looking to grow their mortgage books with loans below 80 per cent, which was increasing the spread in interest rates above and below the 80 per cent threshold.
"If anything there's stronger competition in the under 80 per cent LVR market," she said.
"You might end up seeing a lot less discounting of loans above 80 per cent and a lot more below 80 per cent."
Chapman said ASB did not expect the speed limits to affect ASB more than other banks and she welcomed the Reserve Bank's decision this week to give banks a wider six month window to slow their high LVR growth.
However, she was cautious about whether the speed limits would slow house price growth in the main markets of Auckland and Christchurch, where supply constraints were driving inflation.
"Until supply comes on strong, it's difficult to see how pricing will change as a consequence of these initiatives," she said.
The major driver in ASB's profit growth was a rise in its net interest margin to 2.25 per cent from 2.16 per cent over the year, despite intense competition and falling interest rates in the mortgage market
Chapman said retail deposit margins had risen in 2012/13 as competition had eased after an intense period the previous year when banks were increasing their stable funding sources to meet a higher Reserve Bank Core Funding Ratio.
"There's been some cooling of the intensity in the retail deposit space. This time last year the CFR was increasing and BNZ was quite active in the market raising deposits to get their CFR to the level they wanted to get to."
Chapman said she was confident ASB would keep its growth and profit momentum going into the current financial year.
"We've come into the new financial year with a good strong pipeline in our commercial and corporate and rural areas and I expect that to continue."
CBA's annual cash net profit from New Zealand was NZ$800 million, including NZ$100 million from its Sovereign insurance business, which rose from NZ$74 million the previous year.