sign up log in
Want to go ad-free? Find out how, here.

Opinion: ASB's very public dressing down from Bill English isn't as bad as the potential penalty could be if it doesn't rein in low equity home loans

Opinion: ASB's very public dressing down from Bill English isn't as bad as the potential penalty could be if it doesn't rein in low equity home loans

By Gareth Vaughan

It would have been interesting to have been a fly on the wall at ASB's flash new headquarters at Auckland's Wynyard Quarter yesterday.

For ASB's executives the America's Cup would have made for an even tougher watch than the average Team New Zealand fan. After jumping aboard as the team's official bank during the early stages of the racing when Team NZ built an impressive lead, the ASB folk must have been anticipating preparations for a defence of the Auld Mug taking place at Auckland's waterfront right in front of them.

But with Oracle mounting what's now being heralded as potentially one of the best comebacks in sporting history, rising from 1-8 to 6-8 in the race to nine victories, that dream's looking precarious. (And even more precarious after Oracle's two victories this morning).

But even worse for ASB was a public dressing down for the bank from Finance Minister Bill English yesterday.

When it emerged on Monday that ASB was giving would-be home loan borrowers a deadline of October 4 by when to draw-down on their pre-approval or lose it, the bank's hierarchy would have been prepared for some negative publicity. They'd have surely expected some media coverage along the lines of "bank pulls rug out from under first home buyers."

However, they wouldn't have anticipated, nor welcomed, English's criticism. It turned an already bad situation into a public relations disaster.

Had Prime Minister John Key been in the country and been asked by journalists for comment, it's hard to imagine he would've been so critical. But English certainly gave a good impression of someone unimpressed with ASB's conduct.

"The Reserve Bank was talking about this kind of policy from earlier this year. It looks like ASB weren't really listening. They seem to be the only bank that's got themselves in that position," the Finance Minister said.

"It's pretty tough on first home buyers who had expectations of getting loans," he added.

Regular readers of interest.co.nz will be well aware that ASB has, over the past year, been at the forefront of the high loan-to-value-ratio (LVR) residential mortgage lending the Reserve Bank is now striving to reduce. Figures from the last three quarters show ASB's high LVR lending, as a percentage of its overall net home loan growth, came in at 73%, 71% and 95%. That's well ahead of its major rivals.

ASB CEO Barbara Chapman told me last month, however, that in terms of actual new home loan growth - the key figure the Reserve Bank will be measuring - high LVR lending was running at a bit more than 20%. Chapman also said she expected the Reserve Bank to introduce LVR "speed limits", and that if it did so at the 12% level outlined in one of its consultation documents, that would be a "step change."

As we all now know the Reserve Bank did indeed introduce speed limits, settling on 10% of bank's new home loan flows.

Given its scale as the country's second biggest home lender and high exposure to the Auckland market where house prices are highest and a big chunk of the high LVR lending is thus taking place, it's perhaps not surprising that ASB appears the bank the LVR restrictions are causing the biggest headache for. It's volume of pre-approvals, which generally last for up to six months, would likely include thousands of would-be borrowers with potential loans valued in the hundreds of millions of dollars.

No other banks have yet indicated they plan to follow ASB's lead and cancel pre-approvals.

In fact one rival bank suggested yesterday that it was concerned doing so could potentially be construed as a breach of the Fair Trading Act. That said, you imagine ASB is comfortable with its legal position in making this move. A spokesman for the Commerce Commission, which oversees the Fair Trading Act, said it would need more details - on what he didn't specify - before commenting.

Whether the pre-approval cancellation stems from a mis-read of the determination of the Graeme Wheeler led Reserve Bank to enforce LVR restrictions, hubris, just plan bad luck, or proves a canny decision that other banks ultimately are forced to follow, one thing's for sure.

The bottom line for ASB is that the Reserve Bank has made meeting the LVR restrictions a condition of bank registration. That means a bank that breaches the new rules could lose its banking licence. And that's a risk ASB simply couldn't take.

This article was first published in our email for paid subscribers. See here for more details and to subscribe.

We welcome your comments below. If you are not already registered, please register to 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.

13 Comments

A game of chicken?. See who blinks first?

 

Now, what would happen if ASB breached the new rules and the RBNZ cancelled its licence?

 

C'mon Gareth, go the extra mile

Up
0

This move by ASB is devastating news for the FHB's who have had their pre-approvals cancelled. Nevertheless it looks like a sensible move on the part of ASB and a responsible approach to implementing the RB's experimental LVR policy.

English is just trying to shift attention, not to mention frustration and anger, away from our mighty leaders who we now know have been asleep at the housing wheel. 

 

Damned if you do and damned if you don't. 

 

I have nothing to do with ASB and am not an ASB customer. 

Up
0

What utter rubbish Machiavelli. ASB have had eons to work out what is essentially a simple calculation and apply it.

They are thumbing their nose at policy, I applore Bill for giving it to them.

Up
0

Fisherking - should ASB have honoured all their low LVR approvals? What would English be saying in a few months if they did? Better yet, what would the RB be saying?

Yes they should have heeded the RB warning.. but they didn't. So what should they do now? They can't turn back the clock. 

Up
0

Some sort of compensation to the customer would be nice.

Up
0

I take it your a customer spottie...? what exactly should you be compensated for...? details s'il vous plait...

Up
0

No Christov, I am not.

These would vary on a case by case basis.

I'll start with one.

Auction date on Oct 6.

Property inspection already report done, and lawyers fees yet to come.

Can no longer bid.

Up
0

Good spot Spottie....are you sure you're not a customer and were they expecting to beat the foreign bidders at the Auction...?

 All funing aside , I take your point , well made too. but you know as I do that is life not always fair .

Up
0

Correct Christov, life is not always fair.

However, we do have organisations such as the Banking Ombudsman and Commerce Commission who can hear complaints from customers who feel they have a legitimate case.

Up
0

Absolutely spottie, and I might add I'm surprised the Ombudsman hasn't been inundated post OBR announcement.....there is a palpable atmosphere of fear out there as to Bank stability generally due to overlending....or over committing to lend.

Up
0

Just how do you applore Billy Bob there Fisherking...? did you mean you abhore Billy Bob while standing in ovation..?

Consider in your thinking, the level of exposure the ASB may be readjusting to, then consider the implications of what their action might signal.

 Are we talking about the same Billy Bob who twelve months ago didn't think there were any real problems in the housing market ...to get overly concerned about...?....the same guy who felt the Governor had a handle on the big picture...?

Shheeeeesh mate do you applaud the media for bringing you infomercial politics instead of having the gonads to actualy pursue questions on the ineptitude and sluggishness of policy makers...?

I think I've caught Key's bug....cause he certainly giving me the shits.  

Up
0

I feel sorry for the people at ASB that had to make those phone calls to their clients letting them know their "pre-approvals" were now being withdrawn.

It is definitely a case of "damned if you do" and "look out" if you don't and I find it almost impossible to believe that other Bank's are not going to find themselves in a similar position....

In saying that, I reckon they have found other ways around the issue....

Having recently sent an application online to Kiwibank (approximately 1.5 weeks ago now) for pre-approval for a loan just over the 80% threshold (& told we would be contacted within 24 hours ) it would seem that they have simply opted to completely ignore applications that are outside of the threshhold ....

AND  we are existing Home loan customers so the comment KB made recently about looking after their existing customers first is a joke.....

 

 

 

Up
0

Kiwibank have said they will prioritise first home buyers over investors.

However they should have replied to you, I agree.

Up
0