ASB CEO Vittoria Shortt is confident changes will be made to credit contracts and consumer finance law after an outcry that reforms introduced as recently as December 1 are too prescriptive.
Speaking to interest.co.nz after ASB posted a 23% increase in unaudited half-year net profit after tax to $762 million, Shortt said ASB can easily see the impact of the December changes to the Credit Contracts and Consumer Finance Act (CCCFA).
"You can quite clearly see the impact of it, I think that's an important point to make, even though there are a lot of factors impacting on home lending at the moment. CCCFA is really noticeable in the expense element of applications. And we've quantified that [although] I'll put warnings around that because it's very early days," Shortt said.
"We can see that it's about 7% of [home loan] customers that we would've dearly loved to have helped that we were not able to because of the new requirements."
The CCCFA changes were designed to protect borrowers from predatory lending, but have led to calls they may cause a government-induced credit crunch. At the end of January Commerce and Consumer Affairs Minister David Clark announced a review of the CCCFA, with preliminary analysis due by mid-February, ahead of a final report in April.
"Based on the conversations that we've had we feel pretty confident that some changes will be made," Shortt said.
"And the areas that we are suggesting is; less prescription in terms of the expenses and particularly the discretionary expenses, we think that's important. Secondly the concept of scalability, going into the same level of detail for a credit card versus a home loan we don't think makes a lot of sense."
"And then the last part is we have to make the same level of inquiries for a customer that has been with us for 30 years versus a customer who is brand new. And we think we've got a lot of information on customers that [we] have got good strong relationships with that we think should be factored in. All of it comes down to less prescriptive legislation," said Shortt.
"A really important point about this legislation is it doesn't matter whether you're applying for a $1000 credit card or a $1 million home loan, the level of questions and the verification is exactly the same."
"I'm right behind the intent of the legislation and I'm also really pleased that government's moved so quickly for a review. And I think the scope of the review is really appropriate because it's very broad," Shortt added.
'There's not a moral attachment' to lending
Separately interest.co.nz asked Shortt about a recent article by Michael Rehm, a senior lecturer in property at the University of Auckland Business School.
Rehm suggested that the role of banks in inflating the housing market bubble warrants investigation, noting they create credit by lending to property buyers.
"Without the eagerness of banks to lend increasing amounts of debt onto the shoulders of owner-occupiers and residential investors, the current obscene prices would not be possible. Arguably, loosely regulated bank lending is the central reason behind the gulf between house prices and household incomes in New Zealand and around the world," Rehm wrote.
Shortt noted this was an interesting perspective.
"I guess what that would suggest is that you would credit ration. Because we're comfortable that when a customer comes to us to lend that they have the wherewithal, through the assessments we make, to make that lending possible," Shortt said.
"But if you're saying that you should not do that, then what you're saying is that you've got to ration credit. So you would lend to a person because they can afford it, but you decide not to. So does that mean that I don't lend to you but I do lend to me? And then how would I decide who I'm not going to lend to?"
"In the history of New Zealand, I think decades ago, there was credit rationing that occurred. And I think it was pretty unsatisfactory for people to try and make sense of who got it and who didn't," Shortt said.
"I haven't seen the [Rehm] research or point of view, but it would be interesting to understand a little more about what might that look like. Because our job as responsible lenders is to make sure that when someone is borrowing money, that they can afford to borrow it. [It's] not for us to say that they shouldn't. There's not a moral attachment to it."
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88 Comments
Translation: aargh it’s not fair. We want to get back to ripping people off.
Not what Ms Shortt is saying. She's saying indirectly that if people appear that they can afford to borrow through a box check, let's let it (credit) rip and think about the consequences later.
No need to sound smart Tom.
If you or I take out a mortgage and the house goes up in value by $100k, like it has for so many years, we keep the profit and don't complain. Therefore if the house goes down $100k we should not complain either that anyone has done us wrong.
It's the borrower's decision to borrow the money and he/she needs to accept the consequences.
Let's stop with the blaming others.
Anyway back to your point.
I think the CCCFA is great. It restricts people from over stretching themselves to the ludicrous and perilous levels of debt that people have to get into to purchase an Auckland property. The market will adjust, that too is a great thing. Of course banks and brokers are going to squeal, but common sense needs to prevail
7% of lending is now "unaffordable" under the new rules but not under the old. So shouldn't we be seeing 7% of all houses sold under the old rules resulting in mortgagee sales if those people couldn't afford it? Or is it that almost every one of those people could actually afford it and the new rules are just a bunch of arse?
We recently applied for a mortgage to build on some land we acquired a couple of year ago (took a while to get plans, consent & pricing) but have been told that the CCCFA prevents us from being able to afford to build the units. Never mind that we have a 5 digit monthly surplus and should have 50% equity after the build.
The figure to watch for will be the rate of conversion of consents into actual construction. We are fortunate enough to be able to potentially build 1 of the 3 units 6 months from now (paying cash as we go along), but have to seriously consider it (because without a bank loan any change in circumstances could render us unable to make the progress payments). I can’t imagine that may other others with small build projects would be able to do much better.
Yeah nah, I'm with the banks on this one. The politics are pretty obvious to see - David Clark for example accusing banks of failing to abide by responsible lending laws before the CCCFA changes as his weaselly explanation of credit approvals falling through the floor since the changes. As a consumer having being exposed to both systems, yes CCCFA is obviously overreaching far beyond the low hanging fruit of low income borrowers / unscrupulous lenders.
Private banking shouldn't get any concessions from the government. They should be tightly controlled and should have to report their financial health every month.
They are creating a society which is slave to debt and basically slaves to the banks. We are a small nation and we should take control of our financial systems. We are being fleeced by these profit controlled financial corporations. Their only motive is to have additional profits every quarter and they will do anything to make it happen. By hook or by crook.
But I am sure the current government which talks a lot about protecting the poor and vulnerable but do not really act on anything they say.
Public needs to take action in their own hands since the government they chose is not acting.
Banks only act in their own self interest and just look at the profits they make every quarter. Is this the way of life we want our kids and grand kids to inherit?
NGK
Not all those who don’t get approved will end up renting. We we just looking to build some units on some land we had previously acquired, but can no longer do so. Unfortunately for us the current high build rate means that the govt do not care that their rules mean that cleared sections (which reduce housing supply) may no longer be able to be built on (taking away the corresponding increase in future housing supply).
There's a moral hazard here. If banks know they're going to get bailed out when things go wrong, there's no incentive for them to lend responsibly, especially now when money is so cheap. This is the whole reason for needing the CCCFA in the first place.
Put deposit guarantees in place alongside a promise that banks will not be bailed out, raise interest rates back up to sensible levels, and make board members directly and personally responsible to their shareholders (and if you're feeling really ambitious, heaven forbid, responsible to the banking sector regulator too, whoever that's supposed to be). Then we can talk about getting rid of the CCCFA.
There's a moral hazard here.
Agreed. But Shortt's attitude suggests the banks have the govt by the balls. If you don't take away your silly box check (which can be worked around anyway), the bubble party and punch bowl will go and the sheeple will put the blame squarely on the govt if it all goes tits up.
I understand the banks are in the box seat here. They know that they can use this to pass the buck directly to the govt.
Was this CCCFA brought in at the advice of the Reserve Bank because they found or were afraid that Banks were indulging in irresponsible lending to unworthy borrowers ?
Isn't it the role of Reserve Bank to supervise and regulate the Banks and implement credit control and monitoring measures instead of the Government stipulating the credit assessment rules ?
What about the vaunted independence of the Reserve Bank ?
It is effectively an amendment to existing rules that have existed but not been enforceable.
The CCCFA creates personal responsibility for Bank Directors and CEOs (Vittoria) to not lend irresponsibly. It has never been legal to lend irresponsibly. However as in any business, you can pay good lawyers and accountants to do a risk assessment of compliance risks. To date there were basically no risks to non compliance, so the business benefits from free and easy credit going out to customers who may or may not be able to pay it back reliably totally overshadowed any downsides. 1. The bank creates the money! 2. Minimises administration costs. 3. Property market was always going up so bank (shareholders) always get their money back anyway.
NZ brought in the Health and Safety at work act a few years ago. It completely changed the face of construction as for the first time the CEOs and directors on 6 & 7 figure salaries were clearly responsible for keeping their workforce alive. No if's, buts, or maybes. They are the only ones who can enforce the changes required and put their money where their mouth is, as they are the only ones with the authority to spend that money.
An incredibly similar example here, but rather than employees, these changes are going to force banks to actually start looking after their customers wellbeing. Not expose them to undue stress and hardship by not giving a damn about whether they really can pay long term, while they make a grab for turnover and shareholder profits. Also while completely messing up the NZ housing market for the average kiwi by distorting it with easy money.
They only have one main job people on these kind of salaries, can we blame them, no. So we must legislate.
Banks have always practiced Responsible Lending??? Goodness gracious.!! If indeed they have, then why did the government deem it necessary to bring in CCCFA???? "Outcry for reforms" on CCCFA - drumbeats by self-serving vested interests !!! Phenomenal their depth of charity and concern for the "welfare" of FHB's!! Or the 7% of disappointed mortgage applicants they would have "dearly loved" to pitchfork into the fire of indebtedness!
https://www.interest.co.nz/banking/114265/asb-half-year-profit-jumps-23…
The changes to the CCCFA were actually to stop loan sharks lending to vulnerable people (most of which would never have a mortgage). But typical government couldn't help themselves, they had to "fix" a problem that didn't exist while they were there. There are very few mortgagee sales in NZ as the RBNZ already has fairly strict rules it imposes on banks, and I bet almost every one of those mortgagee sales will be a change of circumstances that the CCCFA won't fix anyway.
You have very few 'mortgagee' sales because most people have sold at a profit into a hot market before the bank stepped in. Just because that doesn't show up as a 'mortgagee' sale doesn't mean it wasn't the equivalent of a mortgagee sale.
Wait until the market isn't hot and people can't get out quickly and at a profit...
Really. Your bank has the massive privilege of being able to create $NZ at a key stroke but you have no obligation to care how that keystroke affects in the wider community. Your only interest is the individual borrower and shareholders.
My expectations were low but I am surprised there wasn't at least a bit acknowledgment of the effect increasing lending into the economy has.
I can see the vested interest groups are trying everything to get this law changed and the rule to be relaxed. Almost every single day Stuff posts articles to go against this law. Of course they will, no one is willing to lose millions of profits. But even if this law is changed, something else has to be done. If not this, then OCR needs to be raised, or LVR has to be set higher. This is the time to see if our RBNZ is truly independent or not. One of their mandates is financial stability and I don't think giving out million dollar loan to individual / family that possibly couldn't pay back for their whole life would be good for our financial stability.
This is the time to see if our RBNZ is truly independent or not
Orr should know that the the whole charade could topple with a single butterfly flapping its wings. The law will go for the self preservation of the govt, followed by other members of the ruling elite (Orr and the reserve bankers). The central bankers have already signaled that they have balanced towards financial repression over increasing rates. They will do it reluctantly and as it restrained as possible.
Nah, I think people (and especially media) hate excessive nanny state telling them what to do. And can it really get more excessive than this, "hey we know what you can afford better than you do"? I really don't get why so many people on this site want the government telling them what they can afford? I sure don't.
Well, one reason is that it prevents a 'mutual assured destruction' situation. The government 'telling them what they can afford' ends up making them better off, so long as everyone is playing by the same rules. If (hypothetically) you and the other 6 FHBS competing for a house can all borrow tons of money, then you have to borrow a ton of money to be competitive. So in this case, government restrictions prevent an arms race which ends up making everyone worse off (except existing asset owners). So it's not so much about wanting the government to telling people what they can afford, but about reducing the amount of money that's chasing housing. That's the part that I think is a good thing.
"ASB CEO Vittoria Shortt confident changes to the CCCFA will be made"
Wonder if this confidence is based on merit OR know the pulse of the politicians that will do anything to support the ponzi in guise of helping average Kiwi.
This confidence is based on how much back handed money they can put in the labour party kitty through gala dinners and donations. I am sure some part of that 700 million profit is shared by the political parties of the country.
They are all corrupt one way or the other. No honest man or woman gets to where these guys are now. Corporations are the hot bed of corruption. ( mostly legally but corruption is corruption whether it's legal or illegal)
"The CCCFA changes were designed to protect borrowers from predatory lending"
Perhaps Vittoria Shortt is a predator and is grooming ASB customers??..
Gotta catch that falling knife?
"We can see that it's about 7% of [home loan] customers that we would've dearly loved to have helped that we were not able to because of the new requirements."
Change laws because of 7% - little bit of sick in my mouth
"Helped" another bit of sick....
beyond words where we are in this society
The emotive language she uses is hilarious -
...we would've dearly loved to have helped that we were not able to because of the new requirements
So why did this 7% of lending not meet criteria? Just couldn't afford the borrowing? Surely they can provide more detail on this...
Disappointing to see you buy into the DGM narrative Yvil. We both know that access to finance and a first house is so crucial to long term financial wellbeing. There are people who slip between the cracks because they consult or are starting businesses, they aren't always declined because they are poor borrowers.
Not sure why people are getting in such a tiz about 7% of prospective buyers being cut out of the market, you have to draw a line somewhere and the line just moved. These are the marginal buyers who can least afford to buy a house and offer the most risk to the banks. The lending market is facing rising rates and I believe, still rising house prices so even 7% is probably not high enough.
fender bender ....the whole financial system in NZ needs a total revamp and it has to come from education at high school level, just in very basic finance and how much mortgages cost over time (also how much interest is paid "up front" .....what banks "pay" to get their money to lend out ? .......bankers "spread" for interest rates ? .......and the famous one "the power of compound interest" when you save money !!
Also, the FACT that INFLATION is THEFT from your pay packet ! .....while the Government MANIPULATE these figures
If the general populace had a rudimentary knowledge of the above, they would finally start to question the current banking system, that is always playing into the hands of "vested interests" !!
"In the history of New Zealand, I think decades ago, there was credit rationing that occurred. And I think it was pretty unsatisfactory for people to try and make sense of who got it and who didn't," Shortt said.
Hmmm.. as I noted on another thread:
Rationed markets are determined by the short- side principle: whichever quantity of demand or supply is smaller determines the outcome (as it is the smallest common denominator for transactions to take place; see Muellbauer & Portes, 1978). Disequilibrium and rationed markets create circumstances that immediately bring economics and politics together: the short side of any rationed market has allocation powers. In other words, the short side has the power to pick and choose with whom it is doing business and how resources are allocated, irrespective of the transaction price. In equilibrium, it is apparently neutral market forces that produce politically palliative outcomes. In disequilibrium, the reality of discrete and arbitrary decisions by allocators (read banks) becomes visible — allocators who can, if they wish, exploit their selection power to extract non-market benefits or ‘rents’...Link
Well done Gareth to mention Michael Rehm’s excellent article. As usual interest actually being journalists and asking good questions
When banks are saying
"We can see that it's about 7% of [home loan] customers that we would've dearly loved to have helped that we were not able to because of the new requirements."
I’d question that. Is it that 7% of loans won’t be approved for the amount requested or they won’t lend to that customer at all? It’s an important distinction.
in addition, it needs to be questioned whether the pre-CCCFA decision was actually still responsible - or whether they would chose to loan pre-CCCFA because the borrower could chose what to list as their expenses? Just because fewer people can borrow as much as they want, doesn’t make it a bad change
I’d question that. Is it that 7% of loans won’t be approved for the amount requested or they won’t lend to that customer at all? It’s an important distinction.
Exactly. I find it pretty implausible that there are that many people who would have been able to borrow enough to buy a house - so at least several hundred thousand dollars - that now can't borrow any money at all. If that is in fact true, then it seems that the most likely conclusion is that banks were being wildly irresponsible before.
Corporate pressure tactics :
https://www.newshub.co.nz/home/money/2022/02/asb-blames-new-law-for-tur…
Why are they all over media at the same time......lobbying......applying pressure.........Carrot and Stick approach by saying that confidence that Government will step in to help average Kiwi ( Not ASB but FHB) at the same time blaming new law.
Should ask this bankers, even without law, should they not be in favour of responsible lending, specially now when it is quite evident that under FOMO borrowing is in extreme. Responsible lending may effect their profit by few percentage but do they not have any social responsibility or is share holders Supreme.
This is the evolution of buying a house in NZ:
Some decades ago:
"Hmmm, can I afford to buy that house and pay it off?"
A couple of decades ago:
"Hmmm, can I afford to get a mortgage for that house, and pay it off one day"
Last 5-10 years:
"Hmmm, can I afford the mortgage repayments" "what?!! pay off the mortgage? Don't be stupid! Who does that?
Banks have no business, potential special rates might be on the table just to attract quality customer switch. Plus the government is likely to drag the CCCFA out before changes just to show the market had slowed.
Any meaningful market correction won’t take place until the next “real” economic recession which has been “delayed” by the “pandemic”
We might see another upward swing before the real recession hits, but don’t think the normal recession will happen until things goes back to normal…
Keep the powder dry.
"We can see that it's about 7% of [home loan] customers that we would've dearly loved to have helped that we were not able to because of the new requirements."
For the last 5 years, the average ratio between first home buyers, owner occupiers are 11.88% and 88.12% respectively.
The average number of home borrowers during the same period is 19,537. Assuming the 7% is equally shared between first home buyers and owner occupiers,
That's 162 aspiring First Home Buyer households being locked out every month since December due to CCCFA!
These are the hardworking Kiwis who did everything right in life but got locked out of owning their own place and moving forward in life because of the Labour government's policy.
Having said that, there's a staggering 1,205 households every month who cannot move from their current place to a bigger one to grow their family as well as those wanting to move to a smaller place for retirement due to CCCFA.
All in all the total number of Kiwi households having their lives permanently suspended by this government is probably around 3,077 by now and counting.
Well done!
If house prices fall 7%, banks will probably lower your borrowing capacity by 10% or more, making you worse off than in the beginning.
Like I said, if you can't buy on the way up; you definitely can't buy on the way down.
That comes with the exception for those with a huge pile of ready cash.
Nothing has changed.
I disagree. A lot has fundamentally changed. For the old farts to maintain the order that they expect in relation to how they think the world should work, there is a diminishing proportion of younger demogs ready to sign a contract with the devil. The post-war suburban family existence is under threat. Part of that is because of the monetary debasement experiment is looking increasingly like a failure and the young people are catching on.
The optimism on your movement is overrated.
Throughout history similar movements have being tried. From Church to State, Monarchy to Democracy, Apartheid to Republic, Tsar to Communism, Tribal to Modern; the results of overcoming perceived oppression remains the same.
Those who managed to overcome become the new oppressors and the cycle repeats.
Nothing will change human nature, the only thing that will change is who wins the new title of being the most hated.
The optimism on your movement is overrated.
I'm not optimistic and not part of the movement. And it's just my perspective. And unlike the old farts in the suburbs, I accept that my perspective could be entirely wrong. However, I do believe in the 4th turning interpretation of change in the social order. And I believe it's already underway.
“However, if history is a guide, civilisation has always being fraught with battles between the haves and have-nots; the generous and envious; and the hardworking and self-entitled.
Nothing has changed.”
And nothing will change.
Play with the rules if one wants to get a ahead, don’t try to work against the rules or complain because life is too short. Of course people get to make their own decisions…
Play with the rules if one wants to get a ahead, don’t try to work against the rules or complain because life is too short. Of course people get to make their own decisions…
Sounds like a very boring game plan. Like dedicating life to working as a bureaucrat or for KPMG.
Fair call ......just curious.
Not in that situation at all - looking at retiring (from my F/T employed position) and doing work to help others - gratis.
No debt with home paid off
17yo SUV gets me round
Does anyone really need a holiday home with book a bach etc ?
As far as the boat goes, an older gentlemen who knows all about boats said there are 2 best times in your life ....the second is when you buy a boat and the first is when you sell it.
I go by the mantra - stay away from the F.I.RE economy at all "costs" ie F is finance, so no credit card interest payments or loan sharks etc
I is Insurance - ask yourself if I lost it, can I afford to replace it myself, while getting the best insurance deal by shopping around on the things that NEED insuring.
RE is real estate ....get a property ASAP (if you want to ?) even if you go in with friends and relatives - I did to start, as this avoids rent and you can start much earlier.
So the above doesn't look after the "vested interests" in this NZ residential property game, which relies on a "misinformed" and "uneducated" public (see my post above)
While the upshot is that wealth is continually transferring from the "people in the street" to those "vested interests" .....while taking away all that capital and cash flow away from R&D, new businesses, expansion of profitable industries etc to make the economy stronger and incomes greater......this is why this whole NZ residential property "game" is such a "sham" !
CWBW, seeing you posted such a long comment here with quite a few numbers here. I really don't want to believe that you are trolling here. So lets discuss this in a different perspective, for this every 7 people out of 100, please tell me why should bank lend them loan under this circumstance:
For the past year, the median housing price has increased by 36% in New Zealand. We are not discussing reginal price, some regions have higher increases than that. So out of those 100 people, how many of them have changed their circumstances like had their incomes increased at least 36% or had some extra deposit to top up the gap if they want to buy houses through out the year? If not, why do you think regulators should let bank lend them extra 36% mortgage for them to buy houses?
You can say that "These are the hardworking Kiwis who did everything right in life but got locked out of owning their own place and moving forward in life because of the Labour government's policy."
But I would say that these are the hardworking Kiwis who did everything right in life but got locked out of owning their own place and moving forward in life because housing price has increased almost 40% last year. I think it's fair for me to say that, isn't it?
Did you not read the article carefully?
"We can see that it's about 7% of [home loan] customers that we would've dearly loved to have helped that we were not able to because of the new requirements."
Let me translate this for you.
It means that without CCCFA, ASB could had been able to lend and that 7% would had been able to borrow.
Your diversion on price increase and deposits being the cause is wrong, it's the CCCFA that caused the miseries for Kiwis on the street.
The Labour government can continue in their tax funded ivory towers to watch the sadist play from afar.
I think you need to read my comment more carefully. The question is not about being “able” to or not. It’s about “should” or “should not”. If I take out the regulation like CCCFA and LVR, of course banks will be able to lend out more, then much more than 7% would be able to borrow. But should they though based on the circumstance I listed above?
ASB are 100% correct. Best comment I have heard for ages. The government has no right to mess with my business or how hard I work. I am amazed the government is not permitting banks to allocate money based on a gambling luck basis. The building societies used to do that back in the 1950’s.
Someone doesn't seem to get that a banking licence does not just appear out of thin air, like the money banks create can. Banks are clients of the RBNZ/Treasury and as such the government and can't legally exist without the governments approval and the backing of the RBNZ. Like any client/employee relationship they must abide by the policies set out in their contractual agreements and any changes required to be made to them and so must banks. As such banks must accept changes to their contract/license agreements set out by the government/RBNZ. If the government deems changes worthy to protect the governed, then bankers can either abide by those changes or get out of banking and start another business. Banks shouldn't be free to do as they please in the economy because as history has proven many times over, they become predatory, can crash economies and destroy innocent peoples lives, if not independently externally audited and legally held to high standards of responsibilty.
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