Auckland too hot for TSB

Taranaki-based TSB Bank has effectively pulled out of New Zealand's fastest-growing and largest mortgage lending market, saying it can't compete with the four major Australian-owned banks and their ability to source cheap funds offshore.

TSB said it had stopped offering high loan-to-value ratio mortgages in Auckland over the last 12 months, as competition from CBA's ASB, NAB's BNZ and ANZ NZ has intensified.

"In the last 12 months we have not been competing for high LVR lending in Auckland," TSB Bank chief executive Kevin Murphy told Banking Day.

Auckland house prices have surged more than 10 per cent over the last year as the Big Four banks have ramped up high LVR lending and reduced fixed mortgage rates, thanks to significant falls in wholesale foreign funding costs. The Reserve Bank of New Zealand is now planning to restrict growth in high LVR lending, citing the risks to financial stability from a potential slump in Auckland's now over-valued house prices.

Murphy was commenting after TSB Bank reported a net profit for the year to March 31 of NZ$73.5 million, up 10.6 per cent from a year ago. TSB Bank grew its total lending by 4.5 per cent, to $2.86 billion, in line with overall bank system lending growth.

Murphy said TSB Bank had continued growing lending in housing markets outside of Auckland. It has also grown rural lending 38 per cent and commercial lending by 38 per cent, although non-mortgage lending still remains relatively small at just seven per cent of its total book.

TSB Bank's geographical focus remains firmly on the fast-growing Taranaki province, on the West Coast of the North Island, where New Zealand's oil and gas industry is based, and where dairying makes up a large part of the local economy. Lending in Taranaki was steady at 31 per cent of total lending.

Murphy said TSB Bank's net interest margin was steady at two per cent, which was lower than that of its main rivals at around 2.4 per cent. TSB Bank is fully reliant on term deposit funding from local retail customers, while its rivals source over a third of their funding from international wholesale markets, where costs have fallen around 50 basis points over the last year.

TSB Bank paid its community trust owner a NZ$11 million dividend for the year, retaining the remainder of its profits as capital to boost its shareholders' equity-to-assets ratio to 8.1 per cent from 7.7 per cent a year ago.

TSB Bank grew its customer numbers again through the year and kept its Roy Morgan customer satisfaction rating at 93.4 per cent, which was the highest of any bank and above the major banks' average of 78.3 per cent,

Murphy said TSB Bank was happy with its tier-one capital ratio of 14.5 per cent, which was higher than Reserve Bank's eight per cent minimum and higher than that of other banks. It said its capital surplus gave it the capacity to grow by acquisition geographically and beyond retail banking. TSB Bank has a BBB+ credit rating, although Standard and Poor's warned earlier this month that it may cut the ratings of TSB Bank and other small banks in coming years if New Zealand's housing market slumped.

TSB Bank bought 26 per cent of fund manager Fisher Funds in February, as Fisher expanded with the acquisition of Tower's funds management business.