BNZ ripe for new mortgage rates war

Bank of New Zealand will relaunch a mortgage price war if necessary as the bank continues to strive for market-share growth.

BNZ managing director Peter Thodey made the threat yesterday as the bank, a subsidiary of the National Australia Bank, said profits in the half year to March rose $1 million to $265 million.

The rise came despite the BNZ's "unbeatable" home loan campaign last spring, which sparked a mortgage price war.

The bank's net interest margin, which measures the profitability of lending, rose to 2.49 per cent from 2.45 per cent, while its share of the home loan market rose to 16.2 per cent from 15.9 per cent at September 30, 2004. It still lags behind rivals ANZ National, ASB and Westpac.

"We've grown half a percentage market share in six months and about 1.3 per cent over the last 18 months to two years," Thodey said from Sydney. "We're the only major bank to be growing [retail] customer numbers. So yes [the campaign] is a success and we're going to continue with that."

BNZ launched its "unbeatable" campaign last spring, pledging to beat any two-year fixed home loan offered by major rivals.

It claims it can undercut competitors because its costs are lower as - unlike ASB, ANZ National Bank and Westpac - it does not use mortgage brokers and pay their commissions.

BNZ offered loans at 6.9 per cent per annum in the run-up to Christmas, less than 0.5 per cent above the bank's own cost of borrowing. To compete, rivals ANZ and ASB dropped their rates as low as 6.95 per cent.

Thodey said if it came to it BNZ could cut its margins that low or even lower in the future although that was not the bank's preferred position.

"Where our competitors pay half their margin to brokers, we're prepared to return that to the customer."

He noted "irrational behaviour" by rivals before Christmas, when they dropped their rates to try to undercut BNZ, was not repeated when BNZ relaunched the campaign in February. BNZ Personal customer numbers increased 35,000 to 440,000 during 2004.

Retail deposits totalled $17.4 billion at March 31, up from $17.2 billion at September 30, 2004. Elsewhere, BNZ is targeting the banking business of 15 to 29-year-olds and said it had lifted its slice of that market to 8 per cent from 6 per cent.

Thodey said BNZ had momentum and aimed to continue growing in core markets: housing, business banking, credit cards and corporate banking.

The bank will invest $60 million above its "business as usual investment" over the next two years, about double what it had invested during the past two years.