BNZ boss: no housing bubble

Anthony Healy says careful management of expenses contributed to the bank's result. Photo / Brett Phibbs

Hard to see shock house price correction, says BNZ chief.

BNZ boss Anthony Healy says he doesn't believe the Auckland property market is entering bubble territory, but New Zealand is facing a "real issue" around housing affordability.

Speaking yesterday after the bank reported a 27.7 per cent lift in half-year profit to $502 million, he said an ongoing shortfall in housing supply and strong migration would continue to drive prices higher.

"It's hard to see a shock [price correction] when you've got probably 10 if not more years of additional construction that's going to have to go on to try and get supply to catch up with demand," Healy said. "I think this is a very long-term issue."

Barfoot & Thompson data show residential Auckland properties sold last month had an average sale price of $804,282, up from $776,729 in March.

NZIER principal economist Shamubeel Eaqub told the Business Herald this week that the Auckland housing market was a speculative bubble, although it was unclear what the "catalyst for change" might be.

"Most likely, it will be external, affecting our economy, jobs and supply of easy money. Maybe a hard landing in China or Australia," Eaqub said. "But that is purely speculative."

Healy said loan-to-value ratios introduced by the Reserve Bank in October 2013 with the aim of cooling the housing market had significantly lessened banks' exposure to highly exposed homeowners.

BNZ reported a 4.5 per cent rise in first-half cash earnings, which exclude volatile and one-off items, to $418 million. Healy said the result had been driven by strong underlying revenue growth and careful management of expenses. Net interest income lifted 7.8 per cent to $804 million in the six months to March 31.

"The revenue growth is off the back of investment over the last couple of years in our core franchise and a strong focus on SME [small and medium-sized enterprises], housing and on Auckland," Healy said.

Watch: Mike's Minute: What housing bubble?

Gross loans and acceptances rose 4 per cent to $65 billion, while customer deposits increased 7.4 per cent to $44.8 billion. The bank's net interest margin - a measure of lending profitability - rose to 2.41 per cent from 2.34 per cent a year earlier.

Healy said BNZ's recent re-entry into the mortgage broker market would boost the bank's performance in home lending. The bank cut its ties with brokers in 2003 in favour of dealing with customers directly.

Meanwhile, BNZ's Australian parent, National Australia Bank, yesterday reported a 5.4 per cent lift in first-half cash profit to A$3.3 billion.

But of greater significance was the A$5.5 billion capital raising it also announced, said to be the biggest in Australia's corporate history.

Through the deal, which is aimed at bolstering the bank's balance sheet, shareholders will be entitled to purchase two new shares for every 25 they now own at an offer price of A$28.50 - a 19 per cent discount to pre-announcement price.

Healy said the capital raising was positive for BNZ because "we will have a stronger parent who will continue to support us".

NAB shares, which were in a trading halt yesterday, last traded at A$35.20.