Kiwibank CEO Steve Jurkovich says there are signs home loan rates may have peaked but around 30 to 40 per cent of its customers are still to move on to the much higher interest rates.
The state-owned bank today reported a record first half result of $98 million for the six months to December 31, up 53 per cent on the $64m it made in the same period in 2021.
Jurkovich said the strong first half reflected a relatively strong economy during the period.
“It was pretty resilient, confidence was coming back with pre-Covid activity bouncing back with tourism and hospitality - you could really see a big change there. But it feels pretty different today that’s for sure.”
While home loan applications continued to be similar to the levels it had when it wasn’t actively campaigning for new business the lending market was slowing, he said.
The bank had put its campaign on hold while the country dealt with the floods and after effects of Cyclone Gabrielle.
“Definitely the drawdowns in terms of people advancing the loans there is going to be a longer period - and you can see that in the real estate activity as well - so I would definitely say it is slowing.
“But in terms of application levels, it’s pretty similar at the moment. But even pre the really nasty weather events, I felt like the market was definitely slowing and this is just going to cause an acceleration of that slowing.”
Jurkovich said more than half of its home loan borrowers had already moved on to the higher rates which have risen from historic lows of 2.25 to over 6 per cent. Some borrowers were shrugging it off as a return to rates seen around five years ago, while its deposit customers were heartened by the rise in rates.
“But of course most people are borrowing way more than they can put on TD [term deposit] so the impact for borrowers is much more significant. But maybe we are near the top. I certainly think after yesterday’s announcement there is an argument to say that we might be a bit closer to the top of rates than we previously thought.”
Yesterday the Reserve Bank lifted the official cash rate 50 basis points to 4.75 per cent in a widely expected move. So far none of the banks have lifted their rates in response although floating rates are predicted to increase with the rise.
Some longer term mortgage rates have begun to drop on expectations that the official cash rate will have to be cut if the country goes into a recession.
Jurkovich said the next couple of months would be complex as the full cost of the cyclone and floods came to bear.
“I think there is a lot to understand over the next coming months - like how quickly we can get the labour and materials on the rebuild and how much of a stimulus that has.”
He said some areas like the Coromandel, far North and the East Coast would find it tough to get the extra builders they needed and there was a lot of work to be done.
“I think the next couple of months are going to be really complex to work out how fast that changes and how much stimulation comes.”
Compared to the Canterbury earthquake there appeared to be a lot more damage to infrastructure.
“That means the Crown is going to have to do a lot more - and some of those roads won’t be able to be rebuilt where they were previously. If you look across that construction sector there is not much spare capacity so even if you have all the money in the world where are you going to get 100 or 200 more engineers?”
Jurkovich said New Zealand would need to bring in people from overseas. “And the question is are we prepared to be bold enough to change our immigration settings to get those people here? Because it has been pretty slow going so far.”
He said around 30 to 40 per cent of customers had yet to roll onto the higher home loan rates.
“While there will be a shock when the rate changes - they will have been anticipating that the rate changes are coming. It will feel quite painful when you make the choice I also think there will be quite a lot of households that have been preparing for the shock and have been living through the cost of living.”
Jurkovich said the bank had not seen any significant uplift in people asking for relief.
“It just continues to be a pretty small steady flow of people. It’s still very manageable.”
The bank was using more mortgage brokers to build its loan business now.
“We think tougher times suggest people really want good quality advice around how they can handle things. We are growing our reach for those customers.”
The bank had always used NZ Home Loans - a sister company - but it had branched out to add other advisers.
“We have added another 140 odd in the last six months and we are now partnering with 380 advisers and there are another couple of hundred in progress.
“For us it is really as the New Zealand market has become keen to engage with mortgage brokers and advisers it’s just about a business model that needs to adjust to respond to changing business needs and customer needs.”
Jurkovich said the bank was seeing a few more businesses look like they were doing it tougher but were not in the situation where they were defaulting.
Those businesses doing it tough were not specific to any sector or industry, he said.
“But the weather events and how centred they are on orchardists and agriculture - we don’t have large exposure to those industries but I expect the other banks will be taking a good hard look at what that means for some of those sectors and how long they will take to rebuild and re-establish.”
He said those industries were important to New Zealand and they would need the banks to stand behind them in the tougher times.
Jurkovich said there would be some really tough times in some areas.
“I think post-Covid people are more fragile - massive weather events like this will just drive anxiety and drive down confidence - so for us we have just got to try and do everything we can to support people including our own people because there is a lot of people personally impacted.”
Jurkovich said it still had about 20 staff in Hawke’s Bay who were finding it difficult to work.
Kiwibank has around 10 per cent of its workforce based in Hawke’s Bay.
It originally established a centre there as part of its business continuity planning in case of a major earthquake in Wellington where its head office resides.
But Jurkovich said the numbers of staff had grown over the years as it got harder and harder to find talent and the cost of living in Auckland and Wellington was so high.
It now had a couple of hundred people centred in the area.
Jurkovich said the bank had no plans to ditch the region for somewhere else as it was a core part of its regional operating model.
“So, yep, 100 per cent it’s back up and running and the last week or so it has been a place that people can bring their family to, to have a hot shower and something to eat and recharge their phone. It’s a big part of who we are and a big part of our focus and our support for recovery.”
Reserve Bank says leaving banks to their own devices hasn't worked.