Thursday 31st October 2013
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Bank of New Zealand chief executive Andrew Thorburn is sceptical the Reserve Bank's new loan to value ratio lending restrictions will work when they are trying to lean against a physical shortage of available housing.
"The Reserve Bank have a good track record over the last five years since the GFC of making consistent and sensible calls," Thorburn told BusinessDesk in an interview following release of the bank's profit result for the year to Sept 30.
"This is a new initiative," he said. "He (RBNZ governor Graeme Wheeler) is concerned about asset prices and funding levels. I wouldn't disagree about that. Whether they will achieve their goal, we will have to wait and see."
"They are running it against significant demand (for housing) and the supply side takes time to adjust."
The lending restrictions are intended to take the heat out of the residential real estate market, especially in Auckland and Christchurch, although a serious shortage of housing stock is in part to blame for the pressure on house prices.
Wheeler said this morning in a monetary policy update that "reconstruction in Canterbury is being reinforced by a broader rise in construction in Auckland and across the country more generally" and that this would "start to ease the housing shortage."
"It's certainly a very demanding and stringent new expectation" which added to the clutch of new regulatory costs the banking sector is bearing, including anti-money laundering, open bank resolution, and the Financial Advisers Act.
"The regulatory burden is definitely increasing," Thorburn said. While the bank was lending less to highly geared borrowers, that was likely to be temporary as cashed up property investors were likely to emerge to replace them.
However, there were opportunity costs in the amount of time and resource required to have staff implement and explain the new rules, which limit the amount of lending banks can conduct with borrowers who have less than a 20 percent deposit on their intended property purchase.
Speaking to the 6.3 percent increase in the BNZ's cash earnings to $788 million for the year to Sept 30, Thorburn said the quality of the bank's total lending was improving along with economic conditions.
While National Australia Bank had singled out the dairy, commercial property and kiwifruit sectors as sources of concern in the New Zealand economy, Thorburn said the overall quality of the loan book was positive.
"We continue to monitor the stress in the very few customers where there is stress," he said. Bad and doubtful debt costs and impairments continued to fall during the last financial year.
While there had been a slight contraction in BNZ's share of the residential lending market, some of this was explained by reclassification of mortgage lending to small businesses secured against personal property from residential to business lending.
NAB presentation slides show BNZ has lower levels of LVR lending than at least four of its competitors, at 15.4 percent of the total home lending book in June.
Meanwhile, the chief executive of the Registered Master Builders Federation, Warwick Quinn, said today that LVRs were having an impact on forward orders for new homes.
While welcoming strong building consent figures for October, Quinn said he was "aware of many building companies whose enquiry levels have dropped significantly and potential clients have been lost as they are unable to obtain finance due to insufficient deposits."
"As today's enquiry' is 'tomorrow's build' the impact may not be apparent for some months. For the LVR policy to be effective supply must be maintained and any reduction in it is counterproductive to keeping a lid on property prices.
RMBF was working with BRANZ and the Reserve Bank to "try and get a better understanding of the potential impacts the LVR policy has on new home construction levels," Quinn said.
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