CEO Dan Huggins says despite the weaker housing market BNZ's happy to continue growing housing lending, where it can lend responsibly.
Huggins was speaking to interest.co.nz after BNZ posted a 7.4% rise in interim net profit after tax to $709 million on Thursday.
BNZ has ridden the Covid-19 housing market surge strongly over the past couple of years, with its total housing lending reaching $54.5 billion at March 31. That's up $9.7 billion, or 22%, since March 2020, when the bank's housing lending stood at $44.8 billion.
As a share of BNZ's total lending, housing has increased to 55% from 50% over that two-year timeframe.
Disclosures in parent National Australia Bank's interim results show BNZ with 0.00% of its home loan book impaired at March 31, a 0.00% loss rate, and just 0.09% of the portfolio past due by at least 90 days.
Huggins attributes this to attention BNZ has been paying to its housing portfolio for a long time.
"We've been saying for a while you need to be lending responsibly to customers and making sure that customers could afford the loans that we are giving them. We've been very focused on that, and you're seeing that focus through the book. It's a very high quality book," he says.
Huggins says low unemployment is helping keep loan arrears low.
"When you look at what drives arrears, unemployment is one of those big drivers. And when you've got unemployment at 3.2%, then that does have an impact on what you see in arrears," he says.
Nonetheless he acknowledges the environment is challenging for both business and individual customers.
"Whilst the economy has done well, businesses and consumers have been resilient, there are a lot of challenges that need to be negotiated. [Including] global uncertainty and inflation, supply chains and Covid. We're still not done with Covid."
"So there's a lot of uncertainty out there. But at the same time as a responsible lender we have been for some time making sure that we have been anticipating interest rates will come off these very, very low levels and customers can service their loans in a higher interest rate environment. And that's what we're seeing, that hard work is what we're seeing flow through the portfolio now where customers are able to meet the commitments that they've made," Huggins says.
As soon as next week BNZ will likely increase its serviceability interest rate, the rate it tests mortgage applicants' ability to repay at. Huggins says. This rate is currently at 6.75%. After increases this week, ASB's now at 7.35% and ANZ at 7.15%.
"In terms of our [housing lending] appetite, we are continuing to be here to support customers. We'll do that responsibly and we'll make sure that customers can serve their loans," Huggins says.
"So we continue to have appetite to lend responsibly to customers in the market, both in housing and in business. So that doesn't change."
He says it's hard to predict exactly where house prices will go.
"I think market consensus is somewhere in the order of a 10% to 15% reduction from the peak. We've obviously seen about a 4% reduction from the [November] peak. How quickly that happens, that's very hard to tell. But that's the direction that we see from here," Huggins says.
"I'm happy to grow where we can lend responsibly. We've got a very well capitalised bank that can support lending into New Zealand. So if I can grow responsibly with the right risk profile, I'm happy to grow. I don't really define the business by percentage of system or market share growth. Actually for me it's about doing the right thing by customers and making sure that we're building the portfolio in the right way," says Huggins.
In its interim results BNZ reported a Total Capital Ratio of 15.3% of risk weighted credit exposures, giving it some $11 billion in total capital.
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9 Comments
"I think market consensus is somewhere in the order of a 10% to 15% reduction from the peak.”
'Market consensus' from all the Vested Commission Merchants only - the banks, brokers, investors, property commentators etc
They are all trying to create this narrative to put a floor on the falls.
It’s just like Trump with his "alot of people are saying ‘add BS here” narrative creation strategy.
It’s down more than 10-15% already FFS.
If you don’t believe that talk to someone trying to sell a house. That’s what they need to discount to sell.
No one knows exactly where this will stop, but no property bubble has burst with only a 10-15% fall.
If the world strongest economy (the US) can have a housing bubble burst where prices fall 50%, how do you think we’re going to fare with our basket case?
I can't believe the amount of BS being spouted about in the last few months from those with their fingers in the pie. I guess relative to our population we have a huge population of people with a vested interest in property so it's to be expected when they are worried the party is coming to an end, in fact I believe there are many that think it is simply impossible!
There is a constant noise trying to pump the market back up, like Luke Skywalker raising his X-Wing from the swamp! Every second advert on the radio is property invest this, market still strong that......all quoting outdated figures from 2021 when the party was in full swing. For the first time ever I am getting bloody RE agents dropping their crap in my letterbox, be quick! Can't wait for reality to bite and they all go quiet.
Last time ,gfc period ,here in Auckland,it felt like mania peaked 2006 ,but was steady selling still,on into 2008 ,then troughed through to early 2012.( My recollections only).
Even if we are going to have something similar ,and we are at the early 2008 equivalent now, there would be a 4 year period ,where underlying inflation balances up the nominal prices. However,due to RBNZ double pumping, we got a double peak, 2019/2020 then last years madness . So we pushed the top of the top ,even further.
It will not be as mild a correction overall ,as 2008 to 2012. Can't be ,really. Must be more exacerbated.
I don't think the two events are comparable . During the GFC interest rates were falling from a very high starting point, cushioning rate at which house prices fell.
This time around we are likely to see rates continue to rise even as prices fall. We also run the risk of inflation lingering, while economic growth stalls/starts to fall. If central banks have to keep raising rates while the economy slows it will be a triple hit of rising cost of living, rising debt servicing costs, and worsening economic activity.
hey look it you want to buy a house for living in but generates no income we will lend you 80-90%
if you want to buy a resi 'investment property" that loses ten grand a year we will lend you 60%
if you want to buy a commercial property that makes a profit, with a tenant that actually sells a good or service , we will need 2.5 times interest cover so lend about 40%
its so damn obvious they are going to go bust only thirty years since they last went bust
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