This is a bit of a concern. It also sends a worrying message that ASB is having trouble in the credit markets given we are still in a rate easing environment.

Demand for credit is falling also.

Very strange move and certain to attract negative attention at the same time the RB is out there pumping NZ's credit rating.

The banks play a game. They want to attract customers but they want to make profits. Their primary focus is to earn money for their owners and shareholders.

Some points:

1. If customers are expecting lower fixed rates they move to variable and will sit in variable even if those rates temporarily rise. It is all money for the banks.

2. At the moment a World economic recovery is being forcast for 2010. That puts a limit on how long NZ will have low interest rates.

3. If a bank is happy to lose a bit of market share while increasing profits for a short period until rates rise again then there is no big deal

4. The OCR is forcast to fall to 2.5% which is already much lower than many thought possible. If there is no recovery in 2010 then rates can be predicted to go much lower. If the forcast is for a recovery in only a few months time now in 2010 then rates are getting to the lowest point already.

So if you predict a recovery you can predict higher rates. If no recovery then lower rates. National bank are coming around to the idea the OCR has to go lower than 2.5% to get the NZD lower. National variable mortgage rates are 7.75%. Breaking a fixed mortgage with them is not cheap. If ASB raise their variable rates it makes it harder to leave National for ASB variable. One day the favour is returned no doubt

At this stage of the game a bottom in US housing is likely Northern Spring 2010. Even if there is only an L shaped recovery sentiment will change and it will flow thru the worlds economy.

NZ is already in a position of rural areas doing ok and a likelyhood of inflation hanging around with these very low rates relative to the historical values of rates so you can imagine it possible that rates are going to rise fairly quickly out of these lows as all of the stimulation being applied now begins to feed thru into economic activity and inflation.

Only if governments begin collapsing is much going to change in the game.

sorry that link failed try this

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/462352...

Andrew, honestly you must live on another planet this from mish

Asia Export Economy Details

* Japanese exports fell 35 percent in December from a year earlier. Industrial production plunged a record 9.6 percent, month on month, in December.

* Chinese exports declined for the third consecutive month in January, falling 17.5 percent from a year earlier, after a 2.8 percent decline in December. Imports plunged even further"”43.1 percent, twice as much as December's 21.3 percent year-on-year drop.

* More than 20 million Chinese migrant workers have lost their jobs so far, with some analysts warning of 50 million more job losses if the economy deteriorates further.

* India exports fell 24 percent in January. According to official data, one million Indian workers in the export sector have lost their jobs since September. Another half a million workers are expected to lose their jobs by March.
* New Delhi's public debt stands at 75 percent of its GDP, compared to just 18.5 percent in China, leaving less room for large stimulus packages.

* South Korea's exports, the main driving force of the economy, plunged 32.8 percent in January. Finance minister Yoon Jeung-hyun warned on Tuesday that the fourth largest economy in Asia would shrink by about 2 percent this year. Credit Suisse has projected as much as a 7 percent contraction.

* Taiwan, the sixth largest Asian economy, saw its exports fall 44.1 percent in January from a year earlier"”the biggest fall since records began in 1972. Imports plunged 56.5 percent in the same month. For an economy where exports account for 70 percent of GDP, the impact is devastating.

http://globaleconomicanalysis.blogspot.com/
and then Ireland turns to Custard. No way this will be fixed in 1 year

http://business.timesonline.co.uk/tol/business/economics/article5733723.ece

and then we get some warm fuzzys from a guy with a fantastic track record

http://www.youtube.com/watch?v=9nJ7LM3iyNg

and then japan
http://www.mi2g.com/cgi/mi2g/frameset.php?pageid=http%3A//www.mi2g.com/c...

and on a new thread because the spam filter cut me off. Japan doesn't look like its going to get over this in a hurry

http://www.mi2g.com/cgi/mi2g/frameset.php?pageid=http%3A//www.mi2g.com/c...

Sleep tight

ASB knows what lies ahead. Gary Judd the chairman had this to say on why the banks profit was down 11%. It is interesting he sites the deterioration of the world economy rather than ASB's over exposure to NZ's housing market as a cause for concern.
Said Judd. "Despite this, the overall quality of ASB's loan book is high, with total provisions of $157m still only representing 0.24 per cent of total assets."
In the six months to the end of June last year, this figure was 0.18 per cent.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=1055...
Is it significant that Matt Ridley the chairman of Northern Rock had this to say back in the summer of 2007 before the bank experienced its liquidity crisis "good loan books continue to attract funding (even) when bad loans began to default."
Mohamed El-Erian in his insightful book "˜When Markets Collide' points out that in periods of significant market turmoil the normal logic is overturned and the high quality part (of the loan book) begins to unravel too. When liquidity dries up "¦ it makes no distinction between loans of different quality, for much longer than even the most extreme forecasts. El-Erian has some very interesting things to say about the NZ experience and irrational investors ignoring risk.

Miguel, having sold and in December broken an ASB fixed with one year to run, I must say their break cost was more than reasonable compared with the horror stories abounding. I don't have a deep understanding of the calculations, but it seemed to me ASB break fees have been on the cheap side; this would mean a big profit hit, no? Especially if, as has been reported, mortgage breaks in Nov-Dec spiked hugely. I would imagine ASB will correct this lapse in usuriousness.

I repeat what I said on a previous thread:

http://www.interest.co.nz/ratesblog/index.php/2009/02/10/video-us-treasu...

mandy familton

Well, you certainly have a fixed view on the matter of lower fixed mortgage rates.

Lets review a possible scenario other than using ripped off local depositors as the source of funding and check out the wholesale funding costs.

Currently the 5 year swap rate is quoted at 4.10%, which is the reference cost for banks to set fixed mortgage rates.

Add to that the likely cost of raising the required finance offshore in NZDs (swap plus 110bps in the case of our banks' Australian parents - ANZ in particular) plus the New Zealand Government guarantee (90 bps).

So, currently we have a possible base cost of 6.1% for wholesale mortgage finance before a profit margin is tacked on. Can we say 2.5 % profit or should it be less?

Short rates may drop a further 1.0%, but still it's difficult to reconcile sub 5% wholesale funded mortgage rates.