The mortgage lending market is slowing after a strong run. Photo / File
ANZ New Zealand chief executive Antonia Watson says the bank still expects to see growth in its home lending book despite warnings from the Reserve Bank that a "sharp correction" in house prices is a possibility.
The country's largest bank yesterday reported a net profit of $1.096 billion for the six months to March 31, up 18 per cent on the first half of its 2021 financial year and a new record for the bank.
ANZ NZ's home loan book grew 8 per cent, with the value topping $100b for the first time to reach $103.1b, up from $96.4b in March 2021.
Its business loan book rose 4 per cent to $19b, up from $17.6b. But already there are signs of slowing growth with home lending only rising 4 per cent from September and business lending up 2 per cent.
The Reserve Bank has ramped up the official cash rate since August, increasing it from 0.25 per cent to 1.5 per cent in a bid to tackle rampant inflation.
Mortgage rates have risen quickly and on top of that has come tighter credit conditions, with clamps applied to low deposit lending in November and a tightening of the Credit Contracts and Consumer Finance Act (CCCFA) in December.
Yesterday, the Reserve Bank said that house prices had already fallen 4.3 per cent since November and a "sharp correction" remained a "plausible outcome" for the housing market.
Watson said its economists were predicting no more than a 10 per cent decline at this stage.
Even if this got as high as a 30 per cent drop, it would only take house prices back to where they were at the start of the pandemic in early 2020, she added.
"At this stage, we still anticipate growth but at a much more subdued rate. We have seen unprecedented growth in the past couple of years."
Watson said the two things that caused stress in the housing portfolio were interest rates rising and increasing unemployment.
"We have got good employment figures and we have made sure we have tested our customers on servicing at a much higher interest rate than the rates they have been taking the loans out at so they have got a buffer there as well."
This week, ANZ moved to increase its test servicing rate, boosting it from 6.7 per cent to 7.15 per cent.
Watson said it could look to increase this again as the official cash rate moved up.
"We are keeping a very close eye on it. It used to be a quarterly process now it's something we continue to watch because there is so much upwards pressure on interest rates."
The bank is also keeping a close eye on possible changes to the CCCFA. The Government announced tweaks to it in March after a raft of complaints from mortgage brokers and the public that it had gone too far.
Watson said the tweaks were welcome as a quick response but backed a submission by the New Zealand Bankers' Association this week that said they had not gone far enough.
"There is still a lot of requirements to look for items that we would consider discretionary and often won't continue after a loan is taken out. It means the process of writing a home loan is taking a lot longer than it used to and that is one of the reasons we have seen some cost growth because we have had to put on more lenders.
"We would urge the Government to look at that NZBA submission to make sure the unintended consequences when you have got good lenders, with really good track records of getting this right - our mortgagee sales are in the single digits. Adding friction to the conversation about getting people into homes - we haven't seen it as necessary."
A full report on the law changes was promised by Commerce Minister David Clark to be done by last month but so far there has been no sign of it. Watson said the bank would look closely at its findings when it did come.
Watson is hopeful a slowdown in home lending growth will be offset by improved business lending.
"It feels like there is a bit more confidence to invest coming out. In the agri sector there has been a bit more buoyancy - there's been more farm sales. It definitely feels like after a couple of years of a lot of belt-tightening, making sure you have a really shored up balance sheet - people have got some appetite for working capital to help grow their businesses."
But one area it is keeping an eye on, which the Reserve Bank also singled out, was commercial property lending.
"We always keep a close eye on that space because it tends to be when there is some sort of crisis it ends up being this segment where there will often be losses. We cap our lending into that space for that reason and have quite strict criteria for the amount of equity and pre-sales. We are comfortable with our book and are watching it really closely."
On the other side of the ledger, customer deposits have also edged up, rising from $102b in March 2021 to $108b. Deposits in transaction accounts have risen from $45b to $50b while term deposits dipped from $36b to $34b in September before returning to $36b.
ANZ NZ chief financial officer Amanda Owens said she expected to see term deposits flowing back over the next two or three years as interest rates headed up again.
"When rates were really low, customers become a bit ambivalent - we are starting to see more flow back into term deposits."
Watson said staff were beginning to return to the office after being encouraged to work from home under the red traffic light setting.
On Tuesday it had a record day since the start of the Delta outbreak, with 35 per cent of desks occupied.
"What we have recognised is the pandemic has really made people realise it is possible to work from home - we have run a whole bank from home.
"We will continue to have a very balanced approach. We really want people in the office sometimes so they are collaborating with colleagues, having those water cooler conversations that can sometimes be the most useful conversations - but equally giving people the opportunity to work from home and the benefits that that brings."
Watson said it had already reduced its office footprint in main centres over the past few years and it was something it was continuing to consider. It was also weighing up how its office space was structured, with the move to needing more meeting spaces than rows of desks.
The challenging economy will be the major worry as the bank heads through the second half of its financial year.
"There are a lot of headwinds around inflationary pressures, workforce pressures, supply chain pressures, interest rates rising - just making sure we are really on top of that in terms of the performance of our book."
Reserve Bank says leaving banks to their own devices hasn't worked.