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Westpac NZ tones down risky home lending amid growing volatility in Auckland house prices

Friday 3rd May 2013

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Westpac New Zealand has pulled back on its level of mortgage lending where it wears the bulk of the risk, amid increasingly volatile house prices.

The lender has reduced its level of lending above an 80 percent loan-to-value ratio (LVR) to about 21 percent from about 22 percent a year after house prices in Auckland and Christchurch rose at a level Westpac wasn't "comfortable" with, chief executive Peter Clare told BusinessDesk. That comes as the bank introduced a 25 basis points margin on low equity loans last week, though Clare said it didn't look like a bubble yet.

"Increasing house prices, particular in Auckland and Christchurch, were not something we were comfortable with," Clare said.

The reduction in high LVR lending comes as the Reserve Bank prepares for its six-monthly financial stability report next week, where it is expected to give some guidance on how it will use its new macro-prudential tools. The new tools allow the central bank to rein in asset bubbles, and include the ability to limit the level of high LVR lending.

Clare said the reduction in Westpac's LVR loans above 80 percent meant the bank was well-positioned to respond to the Reserve Bank using the macro-prudential tools.

The New Zealand unit of the Australian banking group lifted its first-half cash earnings 7 percent to $370 million in the six months ended March 31, with increased home and agriculture lending volumes, and a reduction in the charges it faces for bad loans. The New Zealand unit contributed about 9 percent of the Australian group's A$3.3 billion first-half profit.

"This was a solid result in a competitive environment," Clare said.

Since rival Australian & New Zealand Banking Group ditched its National Bank brand last year, the race to grab the dead brand's customers has died down, competition was still "robust," he said.

Westpac New Zealand grew total lending 3 percent to $59.9 billion from a year earlier, with 3 percent growth in mortgages to $36.4 billion. Of that, some $34 billion has an LVR of less than 80 percent.

The Westpac unit also lifted business lending 3 percent to $21.7 billion, and recorded 8 percent growth in agri loans, "comfortably ahead of system growth."

The bank now has about 13 percent of the country's agri-lending market share, and Clare said Westpac wants to continue raising its exposure in that sector where it's under-represented.

The Australian group's dual-listed shares rose 0.2 percent to $41 on the NZX and A$33.96 on the ASX.

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