Kiwibank's challenge to big boys

By IRENE CHAPPLE

Kiwibank is scratching at the ankles of the major banks, dropping its fixed mortgage rates and introducing a budget six-month rate today.

The state-owned bank has also bucked an upward trend on floating rates, staying on 7.1 per cent while main lenders hover around 8 per cent.

The top five banks have all increased their floating rates since the Reserve Bank lifted the official cash rate by 0.25 percentage points to 5.75 per cent last week.

Kiwibank's new fixed rates vary from 7.3 per cent for one year to 7.85 per cent for five years. Its six-month rate is 6.95 per cent.

Chief executive Sam Knowles said the new fixed rates would save up to $1000 on an average mortgage.

He said there was no justification for rivals' floating rate increases, blaming opportunism.

However, Kiwibank's move is unlikely to seriously pressure the big banks.

David Tripe, senior lecturer at Massey University Banking Studies Centre, said Kiwibank's share of the home loan market was so infinitesimal the change would barely make a ripple.

He estimated that Kiwibank might have 1000 customers from a home loan market of about half a million borrowers.

However, he agreed with Knowles that floating rates among the major banks were unrealistically high.

The rise in the official cash rate was expected, and so had little effect on the 90-day bill rate.

"On that basis," said Tripe, "there is no inherent reason for the [floating rate] movement."

Online money magazine Good Returns editor Philip Macalister was also cynical about floating rises, calling the big banks "greedy".

He said the second-tier lenders could become a serious force, and Kiwibank could become a "very big player".

He added: "It's keeping the big banks honest."

nzherald.co.nz/kiwibank