KEY POINTS:
Interest rate relief for New Zealand borrowers is unlikely in the medium term, says a leading banker.
Local mortgage and deposit rates were unlikely to fall in the next couple of months given current tensions on global money markets, ANZ National Chief Executive Graham Hodges said today.
"I can't see they'll be lower (in a couple of months time) given global market conditions," Hodges told interest.co.nz. Hodges was speaking after ANZ National successfully raised US$2 billion via a 5 year bond sale to international investors last week at a relatively high interest rate.
Unless there was a significant downturn in the New Zealand economy that required the Reserve Bank to cut interest rates aggressively, local mortgage rates were unlikely to fall because not all of the latest rises in wholesale interest rates on international money markets had filtered through to local rates.
"The market has not passed on the full cost of the international credit crisis to the local market," he said. Hodges was speaking after returning from a roadshow in the United States.
ANZ National ended up paying 240 basis points over the local 5 year bank bills swaps rates, which was well above the rates paid for such deals before the start of the credit crunch in mid 2007. There were over US$4 billion of bids for the bonds from 80 investors, but the high premium reflected the tough conditions in the market.
Other similar deals by ANZ and others would have paid 50-70 basis points above swaps before the credit crunch. The 5 year swaps rate is currently 7.35 per cent, implying ANZ is currently paying around 9.75 per cent for this 5 year bond. ANZ's current 5 year fixed mortgage rate is 9.1 per cent, implying it is actually making a loss on these mortgages if it is matching its funding with its lending (although most fixed mortgages roll over before their term expires).
"I wouldn't say we were happy about paying that price, but that's where the market is at present, and we were pleased to get a deal done when there are others who can't get issues away," he said. ANZ National was happy, however, to have successfully raised the long term funds now, rather face the uncertainty of trying to raise the funds on international markets in the coming months, Hodges said.
The deal completes ANZ National's public long term funding programme for at least the financial year to September 30. Conditions on global markets continued to be volatile and funding was expensive for longer term debt deals, in part because of the uncertainties around the US financial system.
The US Federal Reserve and Treasury were forced this week to promise funding to support mortgage behemoths Fannie Mae and Freddie Mac, underlining the seriousness of the credit crisis in US financial markets. Hodges said the traditionally thinner markets in the Northern Hemisphere summer months of late July and August increased the risks of volatility in the weeks ahead.
"The markets have been getting increasingly less stable and approachable since mid-June," Hodges said, adding he was happy to have raised the funding now rather than have to wait a couple of months.
- INTEREST.CO.NZ
