BNZ, Westpac rule out mortgage rate cuts. Don't mention deposit rates

BNZ, Westpac say they won't pass on 25 basis points RBNZ Official Cash Rate cut to borrowers, blaming rising funding costs

10th Nov 16, 9:56am by Jenée Tibshraeny

BNZ and Westpac will not be cutting mortgage rates following the Reserve Bank of New Zealand reducing the Official Cash Rate to 1.75%.

As of 4pm Thursday, following the 9am OCR cut, BNZ was the only bank to have publicly said anything. Just after 4pm, however, Westpac issued a statement saying it also would not be cutting mortgage rates.

The deafening silence from the other banks continues.

BNZ's acting director of retail banking and marketing, David Bullock, said:

“We are not making any changes to interest rates today and it’s a good time to remind people that interest rates aren’t directly or solely linked to the OCR.

"Banks get their ability to lend from a few sources, most of which are getting more expensive and putting pressure on margins.

"One source is local deposits, and at the moment there are more people wanting home loans than there are people saving. So to encourage and attract more deposits (people’s savings and terms deposits) we need to pay a sharper return to savers.

"And we still need overseas funds to fill the gap – and the cost of these remains volatile.

"All those factors considered, it’s still important to remember that today’s interest rates for home loans are still some of the sharpest in decades and still a good time for people with home loans to look at ways to pay off their loans faster.”

BNZ's statement made no mention of increasing deposit rates, and nor did Westpac's.

Simon Power, the consumer banking and wealth general manager at Westpac, said there would be no change to Westpac's mortgage rates following the OCR cut.

"On-going rises in the cost of offshore funding provide no opportunity to lower home loan rates at this time," Power said.

"The consistent low flow of local deposits was forcing banks to look offshore for funds. The OCR is just one factor in assessing interest rates. Its importance is diminished when banks need to use offshore funds to cover the gap left by a lack of local deposits.

"In this situation and in a period of global uncertainty, a number of factors become more influential than the OCR. These include the increased cost and lack of supply in the local deposit market, exchange rate risk and the increased capital requirements for investors.

"With historic low interest rates NZ home owners are taking the opportunity to pay down mortgages faster and reduce debt levels. Many home loan customers have done that and are more than three months ahead on repayments. This deleveraging is prudent and a positive step for the economy and New Zealanders."

Wheeler in harmony

Speaking at a press conference, RBNZ Governor Graeme Wheeler echoed BNZ and Westpac's sentiments, saying banks are looking for funding offshore as lending growth exceeds deposit growth.

Asked how he believed banks would respond, he said it was up to them.

Wheeler pointed out we are starting to see upward pressure on deposit rates and some increases in mortgage rates. He said there may be some adjustments to floating rates too.

He noted the RBNZ had signalled there would be a high probability of it cutting the OCR today, so banks had built this into their rate structure.

Canstar believes banks will be more proactive hiking mortgage than deposit rates.

Its general manager Jose George said: “Recent increases in some deposit rates have not been sustained and I think rate increases may well remain sporadic as banks navigate the tricky global financial waters ahead.”

As for mortgage rates, George maintains “we will not be reading anymore headlines about ‘record low rates’ for quite some time.

“With the popularity of fixed rate mortgages in New Zealand this is not going to be an immediate concern for many homeowners but once again we will see first time buyers disproportionally affected as the cost of borrowing, and therefore the cost of getting on the housing ladder, increases.”

See all banks' carded, or advertised, home loan rates here.

Floating	Prior rate	New rate	Change	effective from
	%	%	%	for existing clients

	5.59
	5.55
	5.64	5.64	-0.00	10-Nov-2016
	5.25
	5.65	5.65	-0.00	10-Nov-2016

	5.45
	5.59
ICBC	5.60
	5.54
	5.54

Mortgage rates

Select chart tabs

Source: interest.co.nz

Source:

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41 Comments

by Joe Public | 10th Nov 16, 10:05am 1478725512

So if bnz deposit rates dont increase and their mortgage rates dont drop (assume all banks follow suit)

Who benefits ?

The banks ?

by Justice | 10th Nov 16, 10:12am 1478725973

Banks only look after banks. Like any business. They sell debt, they create debt. It's up to the consumer to decide if it's a good deal or not. The mattress is looking better all the time for savers

by TimfromTaupo | 10th Nov 16, 11:36am 1478731005

What savers need to do is exactly that, pull out large sums of cash - banks funding will come under pressure and will be forced to raise rates to attract it back.

by Justice | 10th Nov 16, 12:55pm 1478735707

I agree. Take control

by imhenry | 11th Nov 16, 7:17am 1478801871

You would be surprised by the amount of actual cash that is hidden under the mattrass in case of an OBR

by delboy | 10th Nov 16, 4:14pm 1478747690

Actually they look after their shareholders which is exactly what any good business should be doing.

by dictator | 10th Nov 16, 10:55am 1478728520

Given the previous comments the bank announcement is unsurprising. We've officially crossed into the territory where RBNZ is mostly ineffective with the use of the OCR. Other tools they can use are more relevant now.

The only time we'll see a difference is when a bank is prepared to fight for market share.

by Noncents | 10th Nov 16, 11:06am 1478729172

i.e. Justice's comment above.

Switching banks wont change their behaviour. A bank run and the mattress on the other hand...

by dictator | 10th Nov 16, 11:50am 1478731848

The banks aren't competing for market share as they are stretched. There's nothing to change to to get better interest rates.

by Noncents | 10th Nov 16, 2:43pm 1478742200

Stretched? A combined $4billion in profit would suggest they have a little flexibility.

by dictator | 10th Nov 16, 4:44pm 1478749456

When it comes down to a choice between the banks helping themselves or us the choice is simple.

by Zeebeck | 10th Nov 16, 11:27am 1478730470

So can someone put me right here? The Reserve bank cut the OCR the Banks don't pass it on, do the Banks get the gain?

by dictator | 10th Nov 16, 11:49am 1478731777

Some of the gain but a large portion of the funding for mortgages doesn't relate to the overnight right. Therefore is not affected by the OCR change. The banks need to maintain their profit margin to keep shareholders happy.

by OnwardsUpwards | 10th Nov 16, 11:28am 1478730497

If you have a mortgage with BNZ then change to another bank. Let BNZ learn who the boss is.

by rmnz | 10th Nov 16, 12:00pm 1478732422

That just won't work, the other banks will shortly follow suit. The OCR has very little to do with bank rates right now.

by Sluggy | 10th Nov 16, 2:25pm 1478741126

If you have a mortgage you arent the boss.

by sharetrader | 10th Nov 16, 6:36pm 1478756200

you are also not the real owner of the property just the caretaker until the loan is paid back

by keywest | 10th Nov 16, 6:38pm 1478756281

If you don't have a mortgage in an investment then you are most likely a slave.

by JT | 10th Nov 16, 11:51am 1478731877

Wheeler asked the banks to pass on the rates cuts last time and they passed on a small margin. This time they pass on nothing.

by gingerninja | 10th Nov 16, 11:52am 1478731965

I don't understand why this is so hard for people to understand? Unless, you are all utterly addicted to mortgage debt and this news is akin to your dealer telling you that the cost of your drugs
has gone up?

Mortgage debt is dead money. It is not productive debt. Banks need to refocus away from housing debt because it is such an obvious and dangerous bubble. RBNZ has been very open about the fact that they would only decrease the OCR if they thought it wouldn't pose further impetus to the housing bubble.

What would be productive and helpful for the NZ economy would be for banks to lend towards businesses and infrastructure within NZ, which will increase pressure on wages. NZ wages are shockingly low. While you are busy swapping over priced houses and getting yourself in mountains of debt, the banks will not have the capital to lend to business and what with the high levels of immigration, there will be continued DOWNWARD pressure on wages. Which will in turn, suppress inflation.

by Sluggy | 11th Nov 16, 8:19am 1478805563

God Bless you and your comment. I know first hand how hard it is to get business loans. While the property speculators are whinging about 4%, I was paying 15.2%. Time tomove on to useful investments, Lets make NZ great again.

by JT | 10th Nov 16, 12:45pm 1478735139

BNZ - Be good with money.

by diy-guy | 10th Nov 16, 1:02pm 1478736154

Has someone recently got a mortgage? I've just purchased a house and would like to know what *deals* are around that others have got. Not just 'take 50bp off the carded rate" actual rates other interest.co.nz members have received recently? BTW - no problems with LVR (purchased in nelson and mortgage free on a house in auckland).

by keyo_ | 10th Nov 16, 1:20pm 1478737232

I've been offered the following floating rates for a construction loan: 4.80% by ANZ. 4.85% by BNZ, 4.65% by kiwibank (verbal only). All with at least $3000 cash and 3-year clash claw back.

by KEENE1 | 10th Nov 16, 2:46pm 1478742417

4:09 2yrs / 4.15 3yrs plus cash on housing plus investment loan

by diy-guy | 11th Nov 16, 8:53am 1478807602

What bank was that with? And how much cash?

by Kermit The Frog | 11th Nov 16, 5:18pm 1478837939

4.15% 2 yr $8k cash. Kiwibank. Incumbent (and soon to be former) bank westpac matched the rate after much arm twisting but wouldnt contribute cash to stay.

by diy-guy | 12th Nov 16, 5:59pm 1478926762

Kermit - that's a hell of a deal. Providing as much info as you want, are you able to let me know want branch / who the person was that gave out that deal? I'm all for $8k plus good rates.....

by M | 11th Nov 16, 7:03pm 1478844180

I'm currently on a flybuys home loan at the bnz floating at 5.1 $114k (the only deals I'm getting is fly buys points) but I am seriously considering shifting to kiwibank. However I ask the same question what deals are out there for floaters at the moment?

by Boatman | 10th Nov 16, 3:47pm 1478746070

Stuff the Banks , its called profiteering , they have had a good 7 years and finally the tide is turning, so they are trying to maintain their margins , so they wont pass the cuts through .

Let them experience a credit squeeze until they offer more attractive deposit rates.

by Back 2 Basics | 10th Nov 16, 4:53pm 1478750012

Simon powers quotes "there are a number of factors which are more influential than the OCR"
It will be interesting to see what increase the banks place on mortgages once the OCR goes up?
Aren't the big 4 here being investigated for daily swap manipulation ?
The banks just want bigger profits for shareholders and while we have one of the highest OCR in the OECD this won't help our economy!

by bigblue | 10th Nov 16, 6:16pm 1478754990

Filthy bankers pocketing higher and higher margins and more than a billion each profit on average over the last 12 months. A mass move to Kiwi Bank may make the Ozzie banks get their act together and pass on the cuts.
Floating rates should only be 4% and fixed well under 4% - greedy bas?&#ds!

by keywest | 10th Nov 16, 6:40pm 1478756406

I actually agree with you, they should have passed on some of the cut.

by kiwimm | 11th Nov 16, 10:07am 1478812067

I thought the role of Kiwibank was to break the Aussie cartel and force competition into the market. So come on Kiwibank, do the right thing for Kiwis and pass on the cut.

by Grant A | 11th Nov 16, 10:53am 1478814838

There is no "rate cut" to pass on kiwimm, try to understand how it works. Effectively the RBNZ OCR cut is attempting to guide the market to cut their lending rates and the way banks can do that, and maintain their margins, is to do so by combining that with a cut to deposit rates. But they have no chance of that as depositors are fleeing from after tax deposit rates of 2% and the banks can't fund any further borrowing without raising depo rates to try to attract them back. They aren't doing that much yet, but they will, instead since they don't want to take a hit to margins naturally enough like any business, they are limiting what further lending they're doing to some segments of the market, and commercial property is one at the top of that list at the moment.

Furthermore they are raising margins on their lending business across both retail and commercial to improve deposit rates, and will continue to do so until they are satisfactorily funded in terms of the prudential requirements of APRA and the RBNZ. Facts are, rates got too low and attracted more borrowing than depositors are prepared to fund, and there is a big readjustment to that going on, not just here but soon to be in the US which dictates rates globally.

Kiwibank certainly has the option to cut its lending rates if its feeling well funded (most of its liabilities/deposits are cheaper retail deposits since its a minnow lender and can still fund enough from that source), but certainly it can't if it has to start funding off the much more expense wholesale markets as it will have to at some point soon if it plans to grow. Of course it could do so, take a hit to its margins, and deprive the shareholders (tax payers, and pension funds/super scheme) an acceptable return on investment - I'm sure Adrian Orr would love to keep supporting them if that was the case?....socialism is a successful tactic right, worked great for europe?

by Stephen Hulme | 11th Nov 16, 6:07pm 1478840868

..depositors are fleeing from after tax deposit rates of 2% and the banks can't fund any further borrowing without raising depo rates to try to attract them back.

Where did the deposits flee to?

A good place to start looking is set out here.

by MikeM | 10th Nov 16, 7:42pm 1478760132

The real issue is that NZers need to stop their borrow/spend obsession. If borrowers collectively decided to de-leverage, mortgage rates would come down overnight. It wouldn't be a good scenario for savers of course, but borrowers need to realise they can't have it both ways by borrowing up large and expecting rate cuts at the same time.

by Sluggy | 11th Nov 16, 8:21am 1478805680

But isn't a new Ford Ranger the answer to my problems ?

by Alter Ego | 11th Nov 16, 8:27am 1478806075

Totally.for Ford.....Especially if you put it on the House.

by markjames46 | 11th Nov 16, 5:29pm 1478838562

Why are we paying a full % higher than in the US for mortgage rates? We are paying 4% to their 3%. You could argue that our banking system is safer than theirs as people cant just walk away like they can in the US. I think were being ripped off by these Australian banks that we guarantee their security. Theyve been investigating the banks in Oz why dont we have an investigation to stop this trade. Lets figure out a way to keep profits here.

by David Chaston | 11th Nov 16, 5:38pm 1478839111

You misunderstand how banks, money, and funding work. Banks would be irresponsible if they did not hedge foreign currency funding. The simple fact is, a 1% or 2% per year or whatever interest rate difference could be wiped out in a few hours in the currency markets. They absolutely must hedge.

And the way hedging works, you transfer a USD interest rate into NZD interest rates via money market swaps. There is no free lunch.

They go overseas for access to funds, and easier duration matching. They don't go overseas for lower interest rates, just because it is not possible in a responsible way.

Would you borrow in USD and lend in NZD in an unhedged was? You would be wiped out in hours. Banks won't do that either.