Banks hit back at MPs' attack

Banks say fierce competition for retail deposits is the reason mortgage lending rates have not fallen in line with the Reserve Bank's official cash rate.

A report from MPs on the multi-party finance and expenditure select committee this week suggested some banks were charging too much for their variable rate loans.

The committee also said banks' profits have remained high during the recession.

But Westpac and locally owned Kiwibank and TSB Bank all echoed comments from ANZ National on Tuesday that mortgage and other lending rates were now being driven by fierce competition for retail deposits rather than the Reserve Bank's cash rate.

BNZ chief financial officer Ken Christie said the parliamentary committee had come up with a good report, but it contained some "quite surprising comments".

He said banks should be given the chance to go before the committee to "give our side of the story".

Mr Christie referred to "a big push on retail deposits" now being a bigger influence on lending rates than the cash rate, which was "probably losing its relevance as a guide to market pricing".

Westpac's general manager of product management, David Cunningham, conceded the report "reflects the fact that banks haven't perhaps been that flash in terms of what's going on and how rates are driven".

"Probably the thing that most people are missing is that there is an intense deposit price war taking place. That is the key reason interest rates have not fallen as far as the official cash rate."

TSB Bank gets all its funding from retail deposits, and its variable mortgage rate at 6.4 per cent is in line with those offered by the major Australian-owned banks, which get up to 40 per cent of their funding from overseas.

Chief executive Kevin Rimmington said its lending rates were purely a function of rates offered to depositors.

"Depositors want interest rates higher and those borrowing want them lower. There has to be a balance somewhere in between."

Kiwibank spokesman Bruce Thompson said the bank traditionally had a variable mortgage rate half a percentage point lower than its rivals.

The rate is at 5.99 per cent and has not moved since the April rate cut.

Finance Minister Bill English yesterday again said he expected the banks "to demonstrate that they are going to support businesses and households through a tough time in the economy" in light of the taxpayer support they received through the retail and wholesale funding guarantees.

But ANZ National chief executive Jenny Fagg and BNZ's Mr Christie said they would like to see the retail guarantee scrapped because it was distorting the market.

ASB Bank did not respond to requests for comment.

National MP Craig Foss, who chairs the select committee, said the report was not as provocative as portrayed by some commentators, but its message was clear.

"We haven't said banks are making too much profit, but we're very concerned and we need to know the banks are doing as much as they can to help New Zealand through the recession.

"Those concerned should listen very intensely and carefully to what the Reserve Bank says, and from my experience in the financial sector I think they are."