Saturday, 5 Dec 2020

ANZ boss on the boom in home lending and the need for loan restrictions to come back

Home lending is booming but confidence outside of the housing market isn’t there yet and businesses are not borrowing because of the continued uncertainty, ANZ’s New Zealand boss Antonia Watson says.

Speaking after the bank’s annual result was released on Thursday Watson said the bank was expecting October to be a record month for home lending.

“The month of October was a record month for us in home lending and that won’t just be us that will be across the market.”

Watson said across the market about 20 per cent of new lending was going to first home buyers and that amount had increased significantly from the 10 per cent it was not too long ago.

“There is still a large number…of owner-occupiers moving houses but I think the positive thing is the first home buyers part of it.”

Reserve Bank governor Adrian Orr last week said it was looking closely at the amount of highly leveraged lending being done to investors after seeing worrying signs.

Watson said ANZ was not seeing signs that the investor market was overdone yet.

“We are not seeing it yet with that flow. It is below what it has been in various periods in history. But we are certainly seeing low interest rates being a contributor to the excitement we are seeing in the housing market at the moment.”

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Orr warned the banks last week to be more cautious with the statement: “Do it yourself or have it done to you.”

Some have speculated the RBNZ could announce amove to clamp down on loan-to-value ratios again in November when its next financial stability report is due.

Watson conceded that was a possibility.

“It is certainly a possibility. I think it has been an effective tool. We certainly wouldn’t have any issues with it coming back. We are well set up – we have had it a number of years.

“We certainly wouldn’t have any concerns if they felt it was an appropriate tool to use at the time and no doubt they will be looking at the data and what that is showing them and making a decision accordingly.”

In May, the RBNZ decided to take off the LVR restrictions for a year to help banks cope with the fall-out from Covid-19.

Watson said even though the Reserve Bank took the restrictions off it hadn’t relaxed its policy towards high LVR lending.

“So above 80 per cent we are where we were pre the relaxing and that is because we just think it is better for the customer to have a decent chunk of equity in their home and protection especially in uncertain times like what we are in.

“On the residential investment lending ANZ would now lend up to 80 per cent – so you will see a little bit more in that 70 to 80 per cent space.”

Watson said the way New Zealand’s tax system was designed incentivised investors to have higher interest payments on their rental property compared to their home because they can get tax deductions.

“So you will often see people go as high as they can go from an LVR perspective there.”

But Watson said outside the housing market the confidence to borrow was not there yet.

“Ithink businesses are still seeing too much uncertainty ahead of them. We have got the US election, we have got Covid and Europe looks like it might be going into lockdown again, so there is still a lot of uncertainty around there and until we see that confidence I don’t think we are going to see so much demand for business lending but we are ready for it.

“Our appetite hasn’t changed because of Covid. It is one of the real advantages of coming into the crisis in a really strong position is we have been able to be very consistent with risk appetite and how much we lend and who we lend to.”

ANZ New Zealand saw its cash profit drop 29 per cent or $562 million to $1.371 billion in the year to September 30 as its credit impairments rose on the back of the economic downturn caused by the pandemic.

Watson said banks tended to be a reflection of what was going on in the economy.

“It is no surprise that when the economy is slowing we see our profits falling however we are still proud that we are making a return that allows us to stay strong and we can continue to help our customers through the tough times.”

Around 10,000 mortgage customers remain on a deferral down from a peak of 21,000.

“I do expect to see it continue to track down it was 21,000 home loans at its peak so we have seen it halve and some of the earlier six month deferrals are yet to roll off so in most cases we will see those roll off and go back to normal.”

But the bank believed around 5 to 10 per cent of the total that went on deferral might end up needing extra help and it had resourced up it financial hardship team in preparation.

Around three-quarters of its $401 million credit impairment charge was forward-looking Watson said.

“You put in the economic predictions at a certain point of time – 30th September – and work out what expected losses might be based on. So it really depends on if things get better or get worse than we expected at that point in time as to what will happen to that charge.”

But like other bank bosses, she believes things will get tougher for the economy next year although no one wants to predict how tough it might be.

“We need to see what washes through with the reduction of the stimulus that we have had via wage subsidies and deferrals and that sort of thing.

“There is still the ability for the government to have more of a fiscal response and I think what I would like to see and what I have heard from the minister of finance is targetted support where it is needed as opposed to broad brush support.”

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