BNZ keeps up mortgages pace

The aggressive pursuit of market share has not damaged the Bank of New Zealand's capacity to handle any downturn in the housing market, its owner says.

National Australia Bank chief executive John Stewart said yesterday the BNZ's share of the mortgage market had grown as a result of its "Unbeatable" campaign that had been within its usual cautious lending policy and had not introduced more risk into its loans portfolio.

"We've gone no place near 100 per cent loans: I've experienced that in the UK when the housing market collapsed. So all we are doing is increasing the volume at the same level of risk," Stewart said.

His comments were made before a warning by Reserve Bank Governor Alan Bollard that a rising trend in house prices "would not be sustained" and a housing market correction was likely.

The BNZ's two-year-old "Unbeatable" campaign has been held responsible for sparking a mortgage price war among the major banks - and competition has heated up to the extent some banks now offer loans for 100 per cent of the property value.

Stewart said his experience during the house market slump in the UK in the early 1990s taught him "the closer you got to 100 per cent lending the worse the losses got".

BNZ chief executive Peter Thodey said the bank usually loaned 70 per cent of the value of a house, although they could go higher.

The main way the banks controlled lending for housing was to keep loan repayments below 30 per cent of customers' gross income.

He also believed the bank's decision to shun mortgage brokers two years ago - which has allowed it to cut margins during the Unbeatable campaign - has also given it greater control over credit quality.

Bollard's comments echo a warning by the BNZ's own economist, Tony Alexander, that "the end game is in play" in the housing market.

Thodey said while the housing market "may be at the top end", the bank still anticipated a reasonably soft landing. While immigration was slowing, unemployment remained low.

"The last thing that people let go of is their house."

Thodey said about 40 per cent of the BNZ's loan portfolio was made up of residential mortgages.

"I'd like to see more, like 45 per cent," he said.

He said the BNZ had grown market share by 1.5 percentage points in the past two years and now had a 16.2 per cent slice of the mortgage market. It continued to see growing market share as a "good opportunity".

But Stewart was at pains to point out that growth had been profitable. The New Zealand bank was the best performer in the NAB group. While jobs were cut in Australia and the UK, it continued to hire here. Many of the changes made to the BNZ in the past three years were also being exported to other parts of the group.