ANZ raises its floating mortgage rate by +10 bps to 5.79%; also raises some term deposit rates

ANZ has followed BNZ, Westpac and ASB by raising its floating mortgage rate by +10 bps to 5.79%.

This leaves ANZ's floating rate below two of its main rivals and above the other two.

The last time ANZ raised its floating rate was on January 6 and this latest change pushes this rate back to levels we last saw in December 2015 when the rate was 5.99%.

Along with the floating home loan increase, ANZ has raised its Flexible Home Loan revolving credit rate by +10 bps to 5.90%, and its Business Flexible Facility by the same increase to 5.79%.

ANZ last raised fixed rates on January 6, 2017.

The changes by all the large Australian-owned banks leaves Kiwibank with by far the best floating mortgage rate of any of the majors - or even compared with the second-tier banks. (It is hard to see Kiwibank holding this lower-than-market position, especially given that they do have issues with relatively low profitability.)

For perspective, here is the recent change history for ANZ's Total Money product:

ANZ change history Change Floating
  % %
Start of 2016   5.74
March 11, 2016 -0.10 5.64
August 12, 2016 -0.05 5.59
January 6, 2017 +0.10 5.69
March 6, 2017 +0.10 5.79

It is very hard to see how this current round of floating rate rises can be justified. Wholesale money costs are not rising at the short end. (They did rise in mid 2016 because of factors bank treasurers knew about for many months and were prepared for. But that is not the case recently.) Banks may be under margin pressures but these pressures are not margin rate pressures; they are margin volume pressures. Making customers pay for that seems hard to justify. ANZ has raised some term deposit rates and these will raise their costs. But most of their term deposit rates are not rising. And none of their savings account rates are rising. And most of ANZ's household deposits will be for terms of nine months and less and be at average rates that are very low.

And here is a snapshot of the current floating rates by the key retail banks:

below 80% LVR Floating
  %
5.79
ASB 5.80
5.90
Kiwibank 5.45
Westpac 5.75
   
5.55
HSBC 5.59
HSBC 5.65
5.65

At the same time, ANZ has raise some selected term deposit rates. Its 90 day rate has risen +15 bps to 2.75%, its eight month term deposit rate is up by +10 bps to 3.60%, its eighteen month term deposit rate has been raised by +15 bps to 3.75%, and its two year term deposit rate is up +10 bps to 3.90%. 

There are equivalent term PIE rate changes too.

All these changes are effective from Monday, March 6, 2017, except for existing floating rate clients who will see their rate rise on Monday, March 20, 2017. 

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current Comment policy is here.

53 Comments

Blame The Don on rising NZ mortgage rates.

@penguin , take your head out of that snowpile mate , you need to recognize that rising US interest rates have absolutely nothing to do with Donald Trump's presidency.

The US economy has been recovering ( slowly ) over the past 5 years , and is actually doing quite well

The FED has been signalling rising interest rates for well over two years now simply because QE was never intended to be permanent . As soon as the US economy revives the FED will push up rates , and it will affect everyone

So the fact that the US 30yr Bond rate has moved from 2.2% to 3.1% over the last 6 months has nothing to do with it?! The cost of long term funding has jumped nearly 50% in the US over the last few months. Trump =inflation=higher interest rates.

http://data.cnbc.com/quotes/US30Y

Meanwhile the OCR remains low at 1.75%.
A margin of 4%
Does the RB have any influence now on interest rates?
Still. Borrowers should be wary of locking in at longer fixed terms, as this may be a sustained herding action.

Its a disgrace that Banks margins are more than 100% OVER the OCR .

I am not sure it is that connected. It is more of problem that they have been lowering savings rates oncall, but they are raising mortgage rates. So it appears they are trying to increase their margins. Perhaps due to the volume of lending not being there as house prices in Auckland seemed to have stalled a bit.

RBNZ have no influence right now. The story is about having to get funding from offshore and global rates have gone up. There has been a step change. Mortgage rates might yet rise another 1% with no change in the OCR.
Might make a few interest only mortgage holders squeal.

Are banks getting cold feet about lending as house prices ease in some regions? Happy perhaps to build margin rather than chase growth? If they act in unison they could create a self fulfilling cycle.

What is the point in having an OCR if it is ignored by banks?
.
Why can't the Govt create some QE or currency and fully fund schools, hospitals, police, universities, kindergartens, so that at least some money goes into useful sssets for NZ? Since the RB no longer has any influence and so cannot stimulate the economy via interest rates.

Looking at global rates - they are all lower than NZ.

Which leaves three options.

1. Our banks are stupid, they are somehow getting charged more than everyone else, most likely due to a poor credit rating as they are lending it out on overvalued homes.
2. Our banks are stupid, they are paying more for funding offshore than what they would pay if they borrowed from the RBNZ.
3. Our banks are criminal, as they are paying the going global rates or RBNZ Rates, then robbing us blind.

So, are our banks stupid, criminal, or criminally stupid?

Sorry, but I think your criticism is based on a common and superficial misundertanding of how money markets work. This has been explained before, but no bank, no individual, nor even you I reckon, would borrow in one market (lets say the EU at 2%), and lend in New Zealand (at lets say 6%). (Even though I think you want banks to lend that 2% EU money at 3% in NZ.)

To do so is the world's fastest way to lose money. It is plain financially irresponsible.

The reason is the exchange rate.

The exchange rate risk is far, far greater than the interets rate risk. You could lose your 1%, 2%, or 4% per annum margin in just a few hours in the currency markets. No-one, not even you, would sign up for that risk.

So banks lay off that risk in the money markets. Effectively that makes the funds they borrow in euros cost the same as wholesale funds they borrow in New Zealand. Sure the EU markets give them access to the volume of funds, but it never brings the euro interest rate into NZ where they will lend these funds over many years.

No-one in their right mind would risk a ~4% pa rate margin in the FX markets over many years. It would be stunningly irresponsible (even over a few days). Money market hedging eliminates the risk, but it effectively means NZ interest rates apply.

Which means our banks are neither stupid, criminal, nor criminally stupid. What you say makes no sense.

It they did what you want, they would be though.

(btw, if you want to borrow in another low-rate market and lend to me in NZ$ at those rates plus +1% pa margin, taking all the FX risk, contact me. I will take that deal. Anytime.)

"...but it effectively means NZ interest rates apply."

So you are saying that even with the currency risk, the banks are sourcing funding for less than/or equal to 1.75% overseas. Which was my original point, if they are sourcing funds overseas for more than the NZ rate, they are at best "Stupid", at worst, deliberately incompetent.

So the only logical conclusion is that they are lying about their funding costs.

It is interesting, NZ rates go up, so do the banks "Because our funding has been impacted"
NZ Rates drop, banks rates don't "because our offshore funding has not changed"
Offshore rates have not changed in years = "the cost of access has increased"

Record profits year in, year out. Against global banking profit since the GFC would suggest they are indeed rorting the NZ consumer, and/or lying about the costs of their funding.

My understanding may be superficial, but I know a con when I see it.

The rates simply don't add up, neither do the profits.

No - the bank may borrow at 2% in euros but the exchange rate risk means they are effectively borrowing at NZ interest rate,

euro interest rate + exchange rate risk = NZ borrowing interest rate

The margin you claim the banks are making is the exchange rate risk

"euro interest rate + exchange rate risk = NZ borrowing interest rate

The margin you claim the banks are making is the exchange rate risk"

Again, exactly my point.

They are not borrowing at more than the NZ Rate.

So, why is it NZ banks are making about 3% return, when most banks worldwide are making 2%-2.5% if that.

It has nothing to do with risk, and everything to do with profiteering.

I think you are assuming that all borrowing by the banks is at the advertised current term deposit rates. It's not as I said the other day my mother's estate still has term deposits of late 4 to mid 5 percent interest rates due to mature in 2019/2020 ( and I am sure there are many other people in the same situation). The problem is we don't know the make up of the true cost of borrowing ( and it probably fluctuates daily in fractions of a percent).

Looking at the BNZ a 9 month term deposit or PIE is currently 3.60%. The current lowest one year mortgage interest rate is 4.59% - the difference is certainly not the 3% you claim.

Credit card interest rates are a lot higher - but then credit card debt is dumb.

"I think you are assuming that all borrowing by the banks is at the advertised current term deposit rates. "

and you are assuming that all borrowing is at the advertised current rates.

"The problem is we don't know the make up of the true cost of borrowing ( and it probably fluctuates daily in fractions of a percent)."

Exactly, no-one knows. So if no one knows you, how, with any conviction can people say we are not being rorted?

Current rate comparisons and current profit comparisons, would suggest that the Kiwi consumer is not being treated in the same way as overseas consumers. Even within the big 4 aussie banks, the NZ entities make a higher return than their aussie counterparts.

Do I expect the banks to make a loss? Of course not, but at the same time I don't expect to be bent over a barrel, then smile as everyone else sings "Don't worry, be happy"

"and you are assuming that all borrowing is at the advertised current rates"

Two things - firstly while some people will be still on a higher interest rate than the current market mortgage interest rate - they signed a contract with the bank - sometimes you win sometimes you loose - that is the risk you take - if you want to play the market so to speak go on floating. You seem to want what is only favourable to you - life is not like that .

Secondly - as people frequently boast - they don't pay the carded mortgage rate - frequently they get a lower rate. When I had a mortgage I had a special deal via work was only 0.25% off but every little counts.

Noncents - do you think they borrow at the "europe interets rate" plus hedging costs? They re making a 3% return by the way or around the 2.25 - 2.30% - damn

The amount of deposits that the banks hold have fallen significantly over the last 18 months. This has limited the amount they can lend out by way of mortgages. They therefore can't just lend to every Tom, Dick and Harry at low rates at this point in time.

Granted, I am no genius.

But surely they could raise deposit rates to encourage money into the system.

Or, if people have no money (as seems to be the case) then perhaps they could lower their mortgage rates, so that $5 billion doesn't leave the country annually.

I think youll find all banks have been increasing deposit rates to fight for what limited system growth there is. That adds cost and is also against ocr trend.

You understand if they lower interest rates, it fuels credit growth which they cant fund.

Am sick of the misunderstanding that all the profit goes offshore forever too. Plenty of nzers are shareholders of asx listed banks as are many managed funds here. So, back it comes.

Yes, they are raising deposit rates. But at 1/4 of the rate that mortgage rates are rising.

Are you sure that's correct? Looking at BNZ as an example - they have a 2 year TD rate of 3.85%, which is 0.35% better than the same time last year. Their 2 year HL rate is 4.79%, which is 0.30% higher than last year.

Feels like swings and roundabouts to me... and people with savings will be happier and people with mortgages less so, that's kind of how it works.

I prefer to compare floating rate to on call savings - as in theory they should be more reliant on the OCR

Last 6 months
OCR = - 0.5%
Kiwibank Online call = -0.25%
Kiwibank Floating = +.5%

So in all, a 0.75% change in margin.

They can borrow for 1.75% and lend at 5.4%, or what really grates me is technically they can borrow from me at 1.5%, and deposit in RBNZ and make a bonus 0.25%

You are right. The banks are gradually increasing deposit rates to entice people to deposit more funds with them. This trend will probably last a few more months. I personally am not fixing any deposit rates for more than a few months. Once they have attracted more savers they can loan more again. The market has just got to find an equilibrium over the coming months.
It becoming far more attractive to be a saver right now. Not something many people are used to!

It looks to be pure greed to sustain the record profit gravy train going. They've been making huge record profits year after year over people fixing couple/several of years ago when RBNZ was constantly threatening to increase interest rates and with large amount of lending. Hey aussie banks, still making hundreds of millions of dollars of profit albeit not record profit into the billions is ok! Sure the CEO might not be getting his tens of millions of dollars of bonus but it would be nice for me to not to feel like sheep getting fleeced everyday.

Would you prefer if they make record losses? Banks are in the business of making profit. Maybe one day you will do the right thing and loan out your savings at 0% interest.

Or rather than being an extremist, Maybe they could make normal profits, average profits, fair profits or even slightly below record profits - rather than even larger record profits year after year after year.

When you say "Record profit",it depends heavily on what metric you're using. In pure current dollar terms that may be correct, but it's the relativity to equity, capital, changing value of NZD etc that's important.

It;s like saying someone is earning a record salary because its 100,000 and last year it was 99,000. But if $100k doesnt buy now what $99k did last year, or if they doubled their work hours, or if.... see what I mean.

Do you have empirical evidence that relative to risk (NZ housing market!) and market size (4m people is a tiny market for a bank) that bank returns are excessive?

- Inflation is near zero, so the dollar value is no different. i.e. their 100k does buy more than the 99k.
- If they are doing more work, they are earning more revenue, incurring more costs, etc...
- Profit is profit, it is not salary, or revenue. They are making more (percentage wise).
Lets look at BNZ
2016: revenue = 4,944m, profit = 1,038, percentage profit = 21%
2015: revenue = 4,438m, profit = 850, percentage profit = 19%
2014: revenue = 4,056m, profit = 695, percentage profit = 17%

You say we are only 4mil people, so lets do some very rudimentary calculations.
BNZ = $1,038m profit / 4.5m people = $230 per person
Lloyds Banking Group = GDP 4,200m profit / 60m people = 70GDP ($122) per person

So double the amount of profit per person.

Risk? what risk is there to them? They don't need to pay back depositors. They are secured creditors to everything. They don't even have to follow the RBNZ lead. For them to go down, literally everyone else has to have gone down first.

So yeah, relative to everything - they are making more profit.

Noncents/Stev-0. you guys do realise that deposits are only part of where there funding comes from ? But I guess it makes for a better rant whist you can remain uninformed

Yes I do understand that, I know deposits make up a minuscule amount of the big 5's funding. Hence my "rant"

No one in the last 15 years has been able to explain the rorting for lack of a better word, other than your much loved "You don't understand"

Well, if me and millions of other kiwis don't understand, and if the mark of an expert is being able to make others understand, then please, can some expert(s) enlighten us?

1. Why are NZ consumers paying so much more than the rest of the developed world for finance? and
2. Why are the big 5 banks taking in far greater relative profits than all the other banks in the developed world?

I will hold my breath waiting for an answer to your questions

I'd like to know too ..........

In simple words ....... we can all understand

Please provide evidence for your two questions.

Evidence? Oh I forget this is interest. No one can look up anything themselves.

Lets look at UK Banks, they appear to making less money than 8 years ago http://www.businessinsider.com.au/financial-times-analysis-of-uk-bank-profits-2016-4?r=US&IR=T Although granted, they are making a bit more money now. Except for poor RBS https://www.theguardian.com/business/2017/feb/24/rbs-loss-profit-bank

Do I need a link for the troubles at Deutsche bank as well?

I wonder the last time a Kiwi bank had a loss?

Now I know it's wikipedia, but I find it amazing, that only one small bank in all of Australasia suffered (and that was a subsidiary of a UK Bank - rather than an aussie one - which should be noted was happily picked up by CWBA https://en.wikipedia.org/wiki/List_of_banks_acquired_or_bankrupted_during_the_Great_Recession

What about US Banks, they are only increasing in profit by 2% https://www.ft.com/content/d5b38c74-d9e0-11e6-944b-e7eb37a6aa8e

So the whole time the rest of the global banks are returning more normal profits (and shock horror losses), The big 5 year here post 6% increase, and have 6 years of consecutive record profits. http://www.interest.co.nz/business/83011/asb-annual-cash-profit-rises-5-nz908-million

Now I am not saying they are making more actual $$ than the overseas banks, but as a percentage, they seem to be doing a whole lot better than everywhere else.

Not enough - Maybe we could just compare straight bank fees. Which is quite hard as it appears a lot of places pay none in the first place.

I found it all but impossible to find a UK account that charges for transactions, or even just for having an account. http://www.barclays.co.uk/cs/Satellite?blobcol=urldata&blobheadername1=Content-Type&blobheadername2=Content-Disposition&blobheadervalue1=application%2Fpdf&blobheadervalue2=attachment%3B+filename%3Dtariffforpersonalcustomersbankchargesnov16.pdf&blobkey=id&blobtable=MungoBlobs&blobwhere=1367528351032&ssbinary=true
Now don't bleat on about but if you have a mortgage here - these accounts are open to anybody at anytime.

Also check out the overdraft fees - not a percentage in site.

Maybe we should check out deposit guarantees, available everywhere, except for a bank near you. Interestingly even the aussie ones guarantee aussie money.

Now I could keep going, and going, and going. The evidence is everywhere - don't believe me? Then try this little site Google. The world is at your fingertips.

Now for some anecdotal evidence - everyone here on interest has completely shot down the "Rockstar" economy time and time again, and harped on and on about how we are probably worse off than the rest of the world.So you would think this would reflect in our banks profitiability? No?

anyway I digress - back to my original two questions? are you able to answer them? or were you just adding another inane "Evidence" comment which offers no value, counter evidence, or anything other than pointless letters on a screen?

I've got a irrefutable answer for you. Because despite the recent earthquakes (I say recent but of course they were years and years ago) the insurance companies have made huge profits and paid big dividends. And if they can so can the banks otherwise it would not be fair now would it. See they can cause its fair. (Also we have a government and regulations that so yea do what you want we won't stop you)

Well you have the best answer so far.

The insurance companies rort us something terrible. Only difference is now, the international re-insurers are asking questions like "why does a 200m house in NZ cost 5x more than a 200m house in the UK, and 12x more than the USA"

Dear re-insurers.

It's simple, we in NZ are fisted by everyone. We get put over a barrel, the council take a turn, the builder takes a turn, the subbies take a turn, the suppliers take a turn, the power company takes a turn, the petrol company takes a turn, the Govt take a turn, and the insurer takes a turn - meanwhile the bank takes a turn between each of them. we in NZ are a small geographically isolated population.

Yours sincerely
NZ ConsumerNZ Government

At times I wonder if we are a nice little experiment to test ideas before they are spread to the bigger nations. How much can we put them down before they fight back?

Now I hate to stand up for the banks, but remember that 8-10 years ago banks around the world were in an existential crisis, several went bust and others only survived by government bail out. Many in Europe have still not recovered (RBS is a great example). They have also struggled to make money with such low interest rates around the rest of the world. Comparing NZ to them over this time is not valid. That said, I seem to remember total bank profits from NZ being around the 4 billion mark, or about $1000 per New Zealander, which does seem rather a large cut. The answer is, buy bank shares.

"The answer is, buy bank shares"

With what?

you don't need much money to start to build a position, and you can buy whenever you like to build a nice holding over time

ASX minimum holding requirements
There are no minimum holding requirements enforced by the Australian Exchange, however CommSec require a minimum investment amount of approximately AUD500.00.

Wrong. Household deposits make up half of all bank funding. That is hardly miniscule. Again you are a victim of an urban myth. See RBNZ L3 and C17 where all this detail is disclosed.

To understand, you need to do some work. The RBNZ website is a good place to start.

Price fixing?

Because we sold all the banks years ago to the Aussies and I have yet to be involved with an Australian company that wasn't out to screw me.

"It is very hard to see how this current round of floating rate rises can be justified. Wholesale money costs are not rising at the short end. (They did rise in mid 2016 because of factors bank treasurers knew about for many months and were prepared for. But that is not the case recently.) Banks may be under margin pressures but these pressures are not margin rate pressures; they are margin volume pressures."

Maybe, but I see it as banks having the luxury of lending at a higher profit margin because credit demand is currently solid - giving them a certain level of pricing power. Since deposit growth is tracking lower they'll ration credit at a higher margin until they meet credit demand resistance. No monetary policy intervention required at present. The banks are taking care of it themselves - Milton Friedman style.

Seems like an astute observation to me.

House price rout on the cards....More than 1 million Australians face mortgage strife....Australia will experience mortgage stress ranging from mild to severe in the event of just three rises of 25 basis points....The centrality of house prices and widespread faith reinforced over decades of experience that they only ever go up is deep-seated in the Australian psyche.

http://www.afr.com/news/economy/house-price-rout-on-the-cards-but-the-al...

Similar comments apply here but RBNZ did start gently trying to slow lending. Australia is much further down the road and the Australian dream is to have a giant mortgage taking most of their income each month.

So I don't often defend the banks but reading this thread it appears that people are fine making 3.5% relatively risk free on deposits while it's not ok for the banks to make 2% when they have branches, bad debts, analysts, risk etc that they have to deduct? Pretty big double standards. They are running a business in a capitalist society they have risks they need to manage just like a dairy farmer or a fish and chip shop owner. My bet is they wouldn't be increasing deposit rates to entice deposits if their sources of offshore funding were lower cost or risk.

Using that same line of thinking: the banks are taking very little risk on owner-occupier mortgages charging close to 6%, earning ~ 6% on their investment, with very little risk. Home owner defaults being at a very low level, and even then banks claw back most of their money.
So banks have an easy, safe, monopoly on earning 6% with close to zero business risk. A great business model.
Banks First, NZ borrowers second.

Banks make slightly more than 2% on the total assets they control.
But only about 12% of their total assets is their equity
That means they are making 18% on their money
That is why banks trade at about 2.8 times their equity on the share market (market cap to book value)
It is an amazing business, there is none like it.

I think the true measure is Banks continuing record profits , year after year. Few other businesses manage this feat.
Anyone willing to bet against another round of record profits being reported by Banks in July?
We need a strong banking system, but need to make them sweat a bit. At present they are all on to a winner

While I am not disputing bank profits are high, you are not correct they are "continuing record profits, year after year".

You can track bank tax-paid profit on this page. That shows that NZ bank profits have fallen on an annualised basis since peaking in June 2015. For the subsequent five quarters they have fallen with each report. They are now -6.5% lower over that time frame. At the end of 2016 they are back to levels last seen in 2014.

I would withdraw your bet if I were you.

My view is that it is not their profit levels that are the real issue; it the the level of leverage they operate with. The shareholders need to have more skin in the game. 12.8x leverage is just far too high; it should not exceed 7.5x in my view, and even that should be a regulatory maximum.

I couldn't agree more David. One of the the fundamental problems with the GFC was the degree of leverage that the banks had on their mortgage backed securities. Leverage ratios need to be kept in check.