Lender asks: What's going on with Kiwibank?

Friday, 6 October 2017

Borrowers are struggling to get home loans.

Kiwibank is being accused of shirking its responsibility to New Zealanders by clamping down on borrowing.

It only added a net $20 million to its mortgage books in the June quarter, the lowest amount of any of the banks that offer home loans.

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TSB added a net $119m to its home loan book in the same time period.

James Lockie, of non-bank lender General Finance, said that was a concern.

He said Kiwibank was set up by the government to provide New Zealanders with more competitive home loan options.

'Obviously something is going on. They are not fulfilling the role they should be.'

Kiwibank spokesman Bruce Thompson said it was due to a slower housing market.

'The LVR restrictions are making it generally tougher for the market and especially investors.

'Kiwibank has quite a large mortgage book and although the new business has slowed by around 30 per cent in line with the market slow down existing customers also continue to pay down debt, which is positive.'

He said $20m in growth did not translate into just $20m of new lending when the bank had a $17b book amortising and low interest rates.

KPMG head of banking and finance John Kensington said there were a number of factors that could drive the change.

He said the bank now had new commercial shareholders in ACC and the NZ Super Fund.

He said that might have 'realigned' the bank's thinking to consider returns as well as competition for market share.

Kiwibank also had a disagreement with the Reserve Bank about the validity of its capital notes, after the central bank took the view that the notes did not comply with its capital adequacy rules. It had to turn to shareholders for more money.

Kensington said it was positive if Kiwibank was being prudent – 'You don't want the government-owned bank going crazy and lending the most, then having to write loans off.'

It was also possible that Kiwibank was pushing up against its loan-to-value ratio limits. KPMG showed it increased its high-LVR lending by more than a third in the quarter.

Banking expert Claire Matthgews, of Massey University, said it probably reflected a wider change in the market.

'The remit of Kiwibank on establishment was broader than just competitive home loans – it was about competitive banking services more generally, so it's not appropriate to look just at home loans,' she said.

'In addition, it was not just about Kiwibank providing the home loans, it was about their presence in the market leading to other banks providing 'better' home loans, so whether Kiwibank is meeting their objective is not just reflected in the level of lending the bank itself is doing.

'Furthermore, it also reflects the fact that the home loan market has always been competitive, and Kiwibank was not actually needed to provide more competition – a point made at the time it was established.'

Lockie said it was tough for buyers to get loans from any bank. 'We're inundated with demand here because we are not subject to the Reserve Bank [loan-to-value] ratios.'