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ASB breaks ranks and leads mortgage rates up

Thursday 17th June 2010

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ASB Bank became the first bank to lift lending rates after last week's quarter-point increase in the official cash rate, in a move that will capture most borrowers.

From tomorrow, the bank will boost its variable and six-month fixed lending rates by 25 basis points and its 12-month fixed rate by 10 basis points, to 6%, 6.1% and 6.45% respectively for new customers, with existing borrowers coming on from July 5.

The hikes will capture more than two-thirds of mortgage holders, with 69% of the $163.6 billion worth of residential mortgages on either floating or fixed rates for less than a year, according to Reserve Bank data as at May 31.  

"The increases we are making today take into account both our offshore funding costs and the continuing pressure on retail deposit rates in New Zealand," said Catherine McGrath, chief executive of customers, markets and products at ASB.

"The market is now entering a new cycle, and we need to ensure our products are priced appropriately based on our underlying costs."  

Last month ASB's parent, Commonwealth Bank of Australia, reported its New Zealand unit faced a squeeze on interest rate margins as intense competition for deposit rates kept a lid on earnings, with lenders forced to source more cash locally to satisfy tougher prudential requirements.  

ASB will lift its variable deposit rates 25 basis points on June 18, though McGrath told BusinessWire that term deposits were "funded slightly differently" and the bank had not made the decision to hike fixed deposit rates.  

Term deposits make up $151 billion, or 67%, of New Zealand dollar funding, according to central bank data.

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