News and Opinion, sponsored by RaboPlus

By Emma Geraghty

Most banks are now back promoting deals to credit card holders that allow them to transfer their balance onto a new card at a low interest rate for a specified period of time, aiming to win market share and ramp up lending as the economy recovers.

Many banks withdrew their special ‘balance transfer’ promotions during the depths of the financial crisis in late 2008 and early 2009 in an effort to avoid being swamped by heavily indebted customers looking for an easy way out.

A balance transfer can act as temporary relief to card holders with a large amount of debt looking for a quick solution to service the debt. However, customers still often end up paying a high interest rate on any purchases above their transferred balance, which remains at a low interest rate for a specified time only — often 6 months.

All of the big banks except ASB now offer the special interest-only deals, with offers ranging from 2.99% to 8.75% for around six months, well below the regular interest rates of around 19.99%. The Warehouse has the lowest rate at 2.99% and ANZ and National have the highest at 8.75%. See bank credit card rate details here.

ASB General Manager of cards transactions and payments Shaun Drylie said ASB did not offer a special balance transfer rate because it aimed to provide a competitive interest rate on total balances. Non ASB customers can still transfer balances to ASB, but must pay the full rate on all the balance from the start.

“Our low-interest Mastercard is proving extremely popular, with a rate which is more than 1/3 lower than a standard credit card,” Drylie said. ASB offers a ‘low interest/no rewards’ Mastercard from 12.50%.

When lower equals higher

(more…)

Finance Minister Bill English has announced that New Zealand’s government guarantee for wholesale bond issues by banks will end on April 30, following the end of a similar Australian guarantee from March 31.

The guarantee was used by New Zealand’s banks to issue NZ$10.3 billion worth of bonds under 24 guarantee certificates. There have been no payouts and the guarantee fees earned the government NZ$290 million in fees, English said.

The guarantee was set up in November 2008 in the middle of the financial crisis after Australia’s government set up a similar scheme.

(more…)

ASB and Bank Direct have lowered key fixed mortgage rates, bringing their five year rate down to the lowest level of any of the main banks.

Their new five year rate is now 8.50%, down 0.25%.

This gives them at least a 0.10% advantage over The National Bank, the closest other main bank. Westpac and ANZ are still at 8.65%, and BNZ is at 8.75% for a fixed five year term.

Only HSBC has a lower 5 year rate. at 7.99% for their Premier offer, which has specific conditions that apply. Kiwibank is at 8.69%, TSB is at 8.65, and SBS Bank is at 8.75%

ASB also lowered its 4 year rate to 8.20%, also the best 4 year rate by a bank.

Its one year fixed rate fell to 6.25%, bringing it in line with most other banks.

(more…)

There has been an increase of 2.1% for food prices in the January 2010 month, after five months in decline, Statistics New Zealand said today. Prices are up 2.2% from a year ago. (Update 1 includes chart. Update 2 includes economist reaction.)

Significant contributions to the rise in food prices came from higher prices in grocery food, fruit and vegetables, meat, poultry and fish, Stats NZ said. Tomato prices rose 22%, chicken meat prices rose 7.8% and milk prices rose 5.1%, while restaurant meal prices rose just 0.3%.

See the full release below:

(more…)

ASB, which is owned by Commonwealth Bank of Australia, reported a NZ$10 million net loss in the six months to December 31 after a big tax bill for structured finance transactions, a slight tightening of net interest margins and a near doubling of bad debt costs.

Commonwealth bank’s full half year profit results (pages 26-28) show ASB’s cash net profit after tax was A$138 million in the six months to December 2009, down 33% from A$206 million in the same half a year ago, but up from A$126 million in the half year ended June 30, 2009. Here is CBA’s full presentation to analysts.

ASB said its net interest margin fell by one basis point (0.01%) in the six months to December from the six months to June. Downward pressure on the interest margin came from higher funding costs and increased competition between banks for local deposits, ASB said. Bank funding costs are under pressure, partly because of the Reserve Bank’s push for banks to have more stable long term and local funding, and partly because of a global shortage of funding.

ASB’s loan impairment charges almost doubled to NZ$127 million in December from the year before. Total provisions stood at NZ$340 million, compared to NZ$157 million in December 2008. Total provisions represented 0.53% of total assets at December, from 0.4% in June, ASB said.

ASB paid ordinary dividends of NZ$70 million to its New Zealand holding company, but did not send any dividends across the Tasman to CBA: “with our parent committed to supporting its businesses in New Zealand, especially during these challenging times, no dividends were paid across the Tasman to the Commonwealth Bank of Australia,” it said.

However, ASB then said it had lifted its salary freeze placed on employees paid over NZ$50,000 “With the emerging recovery in the economy”.

Here is the full release below from ASB:

(more…)

By Emma Geraghty

Moves by the Commerce Commission late last year to increase competition on credit card interchange fees and cut retailers’ costs by around NZ$75 million have yet to bear fruit as retailers, banks and credit card companies are stuck in a Mexican stand-off to see who will take the first pain. Consumers, meanwhile, have also yet to see any benefits.

The first moves in this impending battle were made in early January when several independent petrol stations started adding credit card surcharges and some government departments started charging these fees for payments online. These moves followed a slew of announcements from the Commerce Commission in August and October about settlements with banks and credit card companies that removed a ban on these surcharges and removed restrictions on so-called ‘interchange’ fees charged to retailers by banks.

The commission hoped these moves would free up the market, forcing the banks and credit card companies to compete with each other and push down fees and, ultimately, prices for consumers. But this has yet to eventuate.

Instead some retailers and government departments have simply added the fees onto  prices to bolster their profits, raising fears consumers will abandon credit cards and use EFTPOS and cash more often, which would cut the NZ$28.5 billion a year spent by New Zealanders using at least 3 million credit cards.

Profit windfall?

If all retailers were to add the current interchange fees of around 2% to all credit card transactions and they didn’t pass that on in the form of lower prices on all goods this would deliver a NZ$570 million profit windfall to retailers and potentially deliver a slight one-off boost to the inflation rate, adding extra pressure on the Reserve Bank to raise interest rates.

(more…)