BNZ boss: don't expect mortgage rates to fall

BNZ chief executive Anthony Healy. Photo / Brett Phibbs.

BNZ boss Anthony Healy says mortgage holders should not expect predicted cuts to the official cash rate to flow through to home loan rates.

The Reserve Bank is widely expected to cut the cash rate at its next announcement on November 10 and some economists believe more cuts will come after that.

But speaking after the bank declared a $913 million net profit for the year to September 30, Healy said the bank was facing margin pressure as overseas wholesale funding costs were rising amid a cooling deposit market.

Asked if that meant mortgage rates were likely to head upwards soon he said: "I'm not going to call it."

But Healy said mortgage rates were at a very low point in the cycle and further cuts to the official cash rate were unlikely to flow through to mortgage holders.

However, there could be some good news for savers who have faced years of low interest rates - albeit amid low inflation.

BNZ chief financial officer Adrienne Duarte said the bank had seen a systematic shift in local deposits (which had been growing at 11 per cent) and had dropped to 8 per cent.

That was seeing excess demand for deposits in a situation that was putting pressure on the banks to increase deposit rates.

BNZ's deposits grew by 8.2 per cent or $3.7b over the year while it's lending increased by $5b or 7.6 per cent.

The bank's average housing lending was up $2.1b or 6.6 per cent and business lending grew $3b or 9.2 per cent.

Healy said the bank had retained its mortgage market share thanks to a focus on sustainable growth and a re-entry to the broker market.

But he said housing affordability continued to be an issue, especially in Auckland.

"As long as migration and supply are key factors the recent loan-to-value restrictions will only have a short term effect."

Healy said he could not see house prices falling in real terms any time soon, bucking a call made by rival bank ANZ earlier this week warning of an "outright price fall."

Last week the bank revealed up to 100 staff could be affected by a restructuring, mainly at its head office.

The move comes on the back of cut-backs announced by Westpac and ANZ to branch numbers.

Healy said the cuts were linked to a dramatic shift in customer usage to online channels and said 90 per cent of bank transactions were now done through those.

He said the bank was investing more and more in those channels and that came at a cost of investment in physical assets.

He said most medium-to-large-sized businesses were having to look at rationalising their products and reducing head count to fund that investment.