By David Hargreaves
Westpac NZ Chief Executive David McLean is seeing definite signs that mortgage competition is "hotting up" between the banks as the housing market shows signs of a Spring upturn.
In New Zealand Westpac reported on Monday a cash profit of over $1 billion for the year to September (up 5%) and a statutory profit of $936 million, up 3%.
“We’ve had a strong result this year and that’s on the back of what we think has continued to be a strong economy and in what is quite a competitive market among the banks, " he said.
On the competition aspect, he said because of the commentary that has been around to the effect that there might be a little less activity in the housing market "there’s some positioning by banks now".
"...Spring tends to be a much heightened area of activity compared to winter and therefore banks gear themselves up to compete quite vigorously in that period.
“If people think that the volume might be down a little bit some lenders might be trying to keep their existing dollar value of volume the same – in other words supplying an increased share – so we see early signs of a bit more increased competition around mortgage lending, which as I say, would be quite normal for this time of the year. It is definitely hotting up."
Asked about the state of the housing market, and the Barfoot & Thompson sales figures released on Monday, Mclean said: "We have seen a bit of flattening or softening in Auckland and Canterbury. The rest of the country holding up. There’s a range of offsetting factors but overall I think one of the big ones that’s still playing up is the imbalance of supply and demand.
"The housing supply/demand factor has not changed'
“The Barfoot numbers were quite interesting, but it’s relatively early in the spring housing season when a lot of houses come on the market and there is more turnover, so, I think in another month or so we will have a much better feel on how things are going.
“I think those underlying supply/demand factors haven’t changed enormously. There’s been a bit of change around offshore buyers and so forth and perhaps a little bit more emigration to Australia but the underlying supply/demand imbalance hasn’t changed enormously and that would be the biggest driver of it in my view."
McLean confirmed that Westpac was reasonably keen to get a share of business stemming from the Government's flagship KiwiBuild policy, which aims to build 100,000 affordable homes over 10 years.
“We are quite keen on that. First home buyers, people getting into homes, is an attractive customer base for us. We’ve been involved in things like that for some time. We’ve been one of the few banks I think who has been involved in Welcome Home loans, which is a joint initiative with the Government, so KiwiBuild itself we think is a good initiative from our point of view and we’d be keen on those type of people.”
The Reserve Bank releases its latest six-monthly Financial Stability Report at the end of this month. If it is going to loosen its limits on high loan to value ratio (LVR) lending again it will likely do it then. For example last November's FSR contained details of a loosening of the policy, which was applied from January this year.
No loosening of LVRs
While many people in the market think the RBNZ will loosen the LVR limits again, McLean doubts it.
"All other things being equal, no.
"I think if there was signs of a more serious slow down I think there would be a good case for it.
“I think the Reserve Bank might be thinking that they wouldn’t do that if there was a risk of the housing market continuing to get a second wind and take off again, so I think their main philosophy at this stage would be trying to keep their powder dry.”
As well as the release of Westpac's annual results, Monday saw a big day for the banking sector generally with the release of the joint Financial Markets Authority-Reserve Bank report on conduct and culture of the banks in New Zealand.
Asked about this and whether there was anything he could say about any issues that might have been raised about Westpac, McLean said: “The report does not name any bank and it does not give any details on any bank so it is an aggregate view across the industry.
“All the banks will get, we understand, a report on ourselves in a few weeks and that will then tell us our own issues.
“So, I haven’t really got a view as Westpac.
“On behalf of the industry as chair of the Bankers’ Association we are grateful for the work the regulators have done. We are pleased they didn’t find any systemic widespread issues and we fully accept the call they’ve made that we’ve got to get on, improve our processes and governance and standards and put in place the sort of rigour around the thing to make sure we don’t have those kinds of issues in the future."
'Heavy focus' on customers
In terms of Westpac's focus in the past year, McLean says they've focused "very heavily" on trying to improve the experience for their customers.
"It’s still a pretty good time to be a bank customer. Interest rates are low – as I said there’s strong competition and it’s hotting up again in the mortgage market and fees are dropping.
“We’ve reduced 24 fees and charges over the last two years – taking out about $36 million out of our P&L [profit and loss account] because we are anxious to make sure that the customers are getting value for what they are paying for."
Asked if he saw more scope for further reduction in fees, McLean said: “Yeah I think so.
"We’ve done that pro-actively and we are continuing to look at things and the [conduct and culture] report out today will focus us even harder on that. So, I think there is still scope for looking at what value the customer’s getting
“…And the other thing is that as we deliver more services to customers in a more efficient way through doing it online or instantly on the mobile phone or whatever that also forces us to look at what we are charging for that."
Asked whether he sees scope for further trimming of interest rates, McLean said it was very hard to pick.
"We are sort of bouncing around at the bottom of that cycle. There are some inflationary signs but a lot of that is imported oil prices, which I think the Reserve Bank will look through.
“…But a lot of it does depend on how if the economy is softening, how fast is it softening. Our economists are telling us they still think there’s a chance of a cut [to the Official Cash Rate] – but I would say my personal view is we will stay at these rates for quite a long time."
'Business has to cope...'
Since the Coalition Government came to power late last year, business confidence as measured by surveys has been falling and is now at low levels.
McLean has previously commented that businesses need to accept that the Government did change and to get on with things.
“My thoughts are that business has to cope with all sorts of things.
"Businesses in New Zealand are pretty good at coping with tremendous variability. Changing Governments is yet another factor. My view is that businesses are good at getting on with it and planning for these things.
"Most of the people we talk to in our customer base are saying they are getting on with it and working out what the change in Government means for them and making their plans accordingly. So, I think the biggest thing that causes problems for businesses is when you don’t exactly know what policy changes are coming down the track, so, I think as the Government’s agenda just keeps getting progressed that uncertainty will reduce."
He conceded there is a risk that low business confidence could lead to a self-fulfilling prophesy of a slowdown in economic activity.
“Well, I think there’s a risk that it does. But I think what we tend to do is look through the headline number and look at what the individual scores are saying. Look at what our own customers are saying about their own businesses and their own business intentions. Other people have done these various other ways of looking at things sort of at a more underlying level and that gives us quite a lot more confidence."
In the year ahead, McLean says from the Westpac perspective the focus is "continuing to invest in the things that deliver better outcomes for our customers".
"So, providing quality, responsible lending to our customers. Our purpose at Westpac is helping our customers financially to grow a better New Zealand and we think that’s more important than ever and that’s what really drives and motivates us.
“For the bank I think it’s moving harder and faster to work out whether the customers are getting the best outcome and if not fixing them up. We’ve seen a drop in the level of complaints – but we probably need to go harder on that.
“…For the economy I think it’s a period for businesses in general a period of consolidation by the Government, which will lead to gradual reduction in uncertainty around policy direction, which will I think give businesses more confidence to invest. So, we see that middle year of the Government’s electoral cycle as one where generally things consolidate and sort of settle down a bit and I think businesses would welcome that reduction in uncertainty."
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