BNZ CEO warns that NZ's low savings rate is likely to restrict business lending

By Gareth Vaughan

New Zealanders' need to lift their poor savings rate or risk seeing their banks struggle to fund the growth of New Zealand businesses, BNZ chief executive Andrew Thorburn is warning.

Speaking to interest.co.nz after the release of BNZ's interim financial results, Thorburn said the competition for domestic customer deposits was the toughest it had ever been as, in the wake of the global financial crisis, banks and financial institutions sought to secure more of their funding domesticallyfrom 'Mum and Dad' retail investors. Although BNZ had increased its share of the retail deposit market to 17.5% at the end of March from 17% last September, Thorburn suggested the competition would only increase.

There was the Reserve Bank's push to increase banks' core funding ratio to 75% from 65%, meaning they have to source more funding domestically, a growing list of companies issuing retail bonds, and the high cost of borrowing money overseas. BNZ chief financial officer Ken Christie said before the global financial crisis the bank could borrow money offshore over a five-to-seven year timeframe for about 20 to 25 basis points over the BKBM (market standard) swap rate.

This soared to about 330 basis points at the height of the crisis and was now in the 200 range. This meant compared to before the global financial crisis it now cost about 180 basis points, or 1.8% more, to secure five year borrowing offshore. Against this backdrop Thorburn said there was "no doubt" one of the strategic issues for the New Zealand economy was that the rate of domestic savings needed to increase. The country had a poor record in domestic savings over a long period of time, not just in bank deposits but also in superannuation and equity investments. "That is one of the strategic issues that we as an economy need to address and encourage savings," Thorburn said.

"Because if domestic savings don’t increase, it’s going to restrict the ability of the banks to fund New Zealand businesses into the future and there’s some really good opportunities out there in the next decade." He wouldn't, however, be drawn on whether he wanted to see the Government do more to encourage savings such as by introducing compulsory superannuation along the lines of the Australian system. Nonetheless Thorburn advocated a "proper diagnosis" to determine what it will take to incentivise and increase the domestic savings rate.

"There are some behaviours that have been long standing. (For example) there’s some investment in some housing classes which presents a challenge for savings, there’s perhaps not the depth in the equity markets, there’s not a broad based advisory network, there’s a very low rate of compulsory savings. You can see in Australia they have decided to move that from 9% to12% over a prolonged period."

The whole savings issue was something New Zealanders' should talk about more.

"And we need to confront it a bit more and provide some real incentives and changes to products and distribution which will encourage that rate of saving to increase," Thorburn added. Meanwhile, Thorburn said rumours that BNZ's parent National Australia Bank had or would look to sell BNZ either through a sharemarket float or trade sale were without any foundation whatsoever. "I could very confidently say that NAB is very, very pleased with its investment in BNZ as it has always been."