Westpac NZ sees Auckland mortgage market heat abating, CEO McLean says

Tuesday 3rd November 2015

Westpac Banking Corp's New Zealand unit wants to match growth in the wider mortgage market in 2016 in what local chief executive David McLean expects will show slower expansion as heat in the Auckland housing market starts to abate.

The local division of the Sydney based bank grew its mortgage business to $41.9 billion as at Sept. 30 from $39.6 billion a year earlier. That was a smaller expansion than system growth, “as the division prioritised maintaining margins.” Its net interest margin improved four basis points to 2.31 percent over the year as lending competition and increased demand for less-profitable fixed-term loans offset cheaper funding costs.

McLean told BusinessDesk the lender tried to manage mortgage growth against margin in the year ended Sept. 30 in what was a very competitive market, and the bank will aim to grow that book by more than "one-times system" in the current period.

"I think the mortgage market won't be quite as hot and frothy as it was last year, just because some of the heat is coming out of Auckland particularly," McLean said. "In some ways that might make the banks even more competitive if it's a slightly smaller pie, so it's going to be an interesting year."

New Zealand's mortgage market grew 6.8 percent in the year through September, in a period when Auckland house prices continued to push higher as a shortage of houses and an expanding population pushed supply further out of whack with demand. Auckland's housing market has been an area of consternation for policy makers who want to keep housing affordability in check without eroding homeowners' wealth.

The lender's New Zealand cash earnings rose to $916 million in the 12 months ended Sept. 30, from $864 million a year earlier. Net interest income gained 8 percent to $1.71 billion, as Westpac's total loan book expanded 7 percent to $69 billion.

Westpac fared better in business lending in the 2015 year, expanding its loan book 9 percent to $25.1 billion, a faster pace than the overall market.

McLean said he was optimistic about almost all sectors for business lending, though he'd be "less keen" on funding apartment property developments, as "there's a slight risk they might be over-building those."

Westpac still wants to lift its exposure in the agricultural sector, though McLean said this year will be about helping the lender's customers through a more cash-constrained time after the slump in dairy prices.

McLean said the credit cycle is starting to turn down with underlying portfolios "as good as they're going to get".

"We're slightly going into the next phase of the credit cycle with economic growth coming off slightly, a few issues in agri, once the Christchurch rebuild starts to taper off, and the El Nino effect," McLean said. "There are factors out there that could put more pressure on the economy, but we're not seeing any rapid downturn - we think we'll just drift slightly lower in terms of credit quality, but nothing to worry about for a couple of years."

BusinessDesk.co.nz

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