Westpac chief parries Bollard

Allan Bollard

New Zealand's second-largest bank says the recent mortgage lending frenzy is driven by consumer demand rather than by attempts to maintain bank profits as suggested by the Reserve Bank this week.

But bank workers' union Finsec says banks are driving aggressive lending campaigns by setting tough performance targets for staff.

On Wednesday, Reserve Bank Governor Alan Bollard criticised banks for prolonging the housing boom by wrestling for market share.

He said total savings were running down in a "spectacular fashion" as inflation surged on rising house prices and consumer spending.

Westpac New Zealand chief executive Ann Sherry yesterday agreed that people's fixation on bricks and mortar was "a structural issue" for the economy.

"Where people do have a preference for housing as their primary form of investment and saving, that drives demand, that's not something that is easy to turn around. That's a long-standing issue in the economy."

But she took issue with Bollard's suggestion that banks were too focused on short-term profit growth by gaining market share on fixed-term mortgage rates.

'We're certainly not at Westpac, which is one of the reasons we didn't engage in the worst of the price competition."

Westpac New Zealand's September year result this week showed that while its housing lending rose 13 per cent, its market share eased slightly as it decided not to match "aggressive pricing strategies in the market".

"We are in businesses here with a longer-term view," said Sherry.

"We will continue to lend prudently and make sure that we are looking at the servicing capacity of our customers for their levels of debt."

She said Westpac "stress tested" its loan book against various economic senarios. "I can tell you that the quality of our lending holds up even in the most difficult circumstances."

The BNZ, which elevated the mortage competition with its "Unbeatable" campaign last year declined to comment yesterday.

But Finsec backed Bollard's concerns, claiming the way banks used sales targets to force their workers to sell more and bigger credit packages, including home mortgages, was aggravating the problem.

Finsec campaign director Karen Skinner said most major banks had pay systems that compelled staff to sell more and more products to meet sales targets and earn the performance component of their pay.