News and Opinion, sponsored by RaboPlus

By Emma Geraghty

Banks are increasingly looking for ways  to make it easier for baby-boomer parents to help their children buy expensive houses in the wake of the property boom.

The essential problem is that parents and grandparents may have savings locked up in term deposits or in house values, but don’t want to simply hand the cash over to their kids, while their kids lack either the deposit or the income to make the big leap into home ownership.

BNZ launched its TotalMoney home loan three years ago. It allows savings in up to 10 related accounts to be ‘pooled’ or ‘offset’ against a mortgage, which allows the borrower to borrow more and generates an effective return for the savings that is higher than a regular term deposit rate. However, it means the related savers (often parents, grandparents, aunties, uncles etc) are sacrificing their interest payments so that the kids or grandkids can borrow more.

BNZ’s Chief Operating Officer for Retail, Glenn Patrick, said parents can make a difference to the amount of money their children can borrow and the level of interest they will pay.

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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.

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By Hugh Pavletich

The 2010 6th Edition Demographia International Housing Affordability Survey was released January 25, 2010, generating significant international media coverage, including a report on the Demographia Survey by the highly regarded Mish’s Global Economic Trend Analysis.

This Annual Demographia Survey covers the 272 major urban markets of the United Kingdom (33 urban markets), United States (175), Canada (28), Australia (23), the Republic of Ireland (5) and New Zealand (8).

For urban markets to rate as affordable, housing should not cost any more than 3 times annual household income.

On a country basis of the major urban markets surveyed, the United States was the most affordable with a Median Multiple of 2.9, Canada and Ireland both 3.7, United Kingdom 5.1, New Zealand 5.7 and Australia experiencing the most intense housing stress at 6.8 times annual household earnings.

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New Zealand’s big four Australian-owned banks and the Inland Revenue Department have announced a settlement of their disputes over structured finance deals that involves the banks paying the government a gross NZ$2.2 billion. This represents 80% of the amounts owed by the banks and is the largest commercial settlement with the IRD in its history.  (Updated with comment from ANZ, ASB, BNZ, Westpac and the IRD)

The settlement follows years of legal fights and two high court rulings in favour of the IRD. The banks will not pay penalties and the full details of the settlement are confidential, although they are paying 80% of the total tax owed plus interest. The amount was enough to boost New Zealand’s current account into a surplus in the September quarter for the first time in almost 21 years.

The Commissioner of Inland Revenue, Robert Russell, and the Solicitor-General, David Collins, said they were pleased the long-running tax disputes involving four major banks had been settled.

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The Banker magazine has named Kiwibank the best New Zealand bank in its annual awards for banks globally. Here’s what they wrote in their awards edition. Rabobank was awarded the best Dutch bank and Westpac was awarded the best Australian bank. Here’s what The Banker wrote about Kiwibank.

Established in 2002 by the state-owned New Zealand Post Board, Kiwibank is the epitome of a young, energetic upstart with expansive ambitions underpinned by strong, creative branding and product ideas. In May 2008, Kiwibank launched two innovative deposit products, while in March and April 2009 the bank launched a wealth advisory team, the Kiwibank Visa debit card and unveiled a joint venture with AMP Capital Investors to offer a range of managed funds.

Kiwibank’s strong focus on the end customer, competitive pricing and excellent customer service, impressed the judges. Energy and innovation is matched, however, by strong growth and financials, with Kiwibank posting a meaty 52% increase in assets and a 19% growth in net profits during 2008. From the beginning of the financial year to June 2009, the bank also experienced growth in retail deposits of 39%. In order to build on its success so far and free up funds for future investment, Kiwibank raised $60m through an oversubscribed unsecured subordinated bond issue in September 2008, the proceeds of which are being used to augment the bank’s capital base and support further expansion.

Underlining its success to date, Kiwibank was awarded so-called ‘big bank’ status by the Reserve Bank of New Zealand in May this year, following the expansion of the bank’s balance sheet to $10bn.

“We believed there was room for a New Zealand-owned bank offering better service and more competitive rates and fees. We wanted to make a difference. We have had massive support from New Zealanders and now have a customer base of more than 650,000 people,” says Sam Knowles, CEO of Kiwibank. “To be recognised by The Banker magazine is an endorsement of our endeavours by the industry. It gives us renewed confidence to meet the challenge of continued growth of market share and profitability.”

The Roy Morgan survey of customer satisfaction for banks in New Zealand that was released in September showed TSB had the highest customer satisfaction, while Kiwibank was second, ASB was third, National Bank fourth, Westpac and BNZ fifth equal, and ANZ last.

What’s your view?

Has The Banker got it right or is Roy Morgan more accurate?

Finance Minister Bill English has set the scene for a tough 2010 Budget by detailing “rampant” government spending growth over the last five years that is “unsustainable and cannot continue”. Government spending grew three times faster than the rest of the economy in the last five years, English said. (Update 2 includes video from Bill English)

“Baseline Budget spending has jumped 45% since 2005 – at a time when inflation and the economy only grew by about 15%,” English said a month out from the government’s Half Year Economic and Fiscal Update (HEFU).

“More than a third of all Budget vote areas received funding increases of over 50% in the past five years and over two thirds received increases of more than 30%,” English said.

English is right in the middle of setting budget targets for ministries and compiling the details of the 2010 budget due in May. He will have already seen the early drafts of the HEFU. The 2010 budget is the last before the election year budget of 2011.

Here is the full release from English below and a short video from English:

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