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By Gareth Vaughan
Westpac New Zealand's new CEO says the bank takes a conservative approach to the mortgages it writes with loan-to-valuation ratios (LVRs) above 90%, incorporating a buffer to cover interest rate movements, and has put around 150 families into their first home over the past six months.
Speaking to interest.co.nz in a video interview after Westpac released its half-year financial results, Peter Clare - who replaced George Frazis as Westpac NZ CEO in early April - said the bank's 90% plus LVR lending was "absolutely" responsible lending.
Westpac, alongside ASB and BNZ, has been growing home loans in the above 90% LVR range in a move that has come under fire from David Hisco, CEO of ANZ NZ. Hisco told interest.co.nz in March that lending customers as much as 95% of the money they need to buy a house may not be the right thing to do and isn't the best use of funds by a bank in a world where banks are paying more for the money they borrow to on-lend to customers.
However, Clare said Westpac was careful about such lending.
"The way we approach high LVR lending is we take a conservative approach in terms of the customer's ability to service that loan and we add a buffer to cover interest rate movements as well," said Clare.
"I want Westpac to be an organisation that provides financial services to all New Zealanders where it makes sense for them in terms of an affordability sense. Taking a case in point, above 90% LVR loans, we've helped nearly 150 families get into a home in the last six months and I think that's terrific."
He said he was "absolutely" comfortable such customers could meet their repayments.
"It is entirely within our risk appetite because we don't want to lose money and each of these customers have met all of our credit requirements."
Reserve Bank Deputy Governor Grant Spencer said yesterday limits on LVRs was one of four policies the central bank considers "viable candidates" to put the brakes on any future sustained boom in credit and asset prices.
Clare, an Australian whose wife hails from the Hawke's Bay, was previously chief operating officer of Westpac's Australian Financial Services business.
New Zealand results a standout in the Westpac Group figures
Westpac NZ yesterday posted record interim cash earnings, up NZ$64 million, or 24%, from the same period of the previous financial year to NZ$333 million. The half-year figures incorporate profit from about NZ$6 billion worth of assets and around NZ$5 billion of liabilities transferred to Westpac NZ from its Australian parent late last year after the bank took "corrective action" to address breaches of Reserve Bank bank registration conditions.
Westpac NZ reset last year's interim results to reflect the transferred business, which means cash earnings for the six months to March 31, 2011 increased by NZ$59 million to NZ$269 million from the NZ$210 million reported a year ago. Westpac NZ's latest half-year results saw its net interest margin rise 6 basis points to 2.43%, compared with a 6 basis points drop in Westpac Group's net interest margin to 2.17%. Westpac NZ's return on average assets rose 13 basis points to 1.1%.
See Westpac NZ's full results presentation here.
The New Zealand result was a highlight in Westpac Group's interim results with group CEO Gail Kelly telling analysts' it was an "all around strong performance."
"We achieved at, or above, systems growth in all of the key (lending) categories although of course, systems growth was very, very, very modest," said Kelly. "We've improved our margin within New Zealand. George's strategy has been a Westpac Local lite, if I can call it that, in New Zealand focussing very much on main bank relationships in retail."
Westpac Local is a strategy implemented by Westpac in Australia whereby power is shifted from head office back to branch managers with their names appearing on the front of Westpac branches.
"His (George Frazis') customers with four or more products is up to 49% (from 47.8% a year ago and compared with just 29.9% at Westpac in Australia). In the commercial side he has actually focussed very heavily on the credit skills side and the relationship sales side, relationship management side. And also getting the asset quality to the healthy position it is now. So (after) three years, a real turnaround in our New Zealand business. Peter Clare's there now and he's really stepped into the chair and full steam ahead," Kelly added.
Frazis has moved back to Australia to take the reins at Westpac's St George Bank.
Meanwhile Clare said he had inherited a business with real momentum.
"It has a strategy that's working and in fact I'm in the very luxurious position of being able to say that I intend to keep that momentum going. I don't think I need to change anything radically, just simply hone some of the things that we're doing to improve our performance," said Clare.
Asked to expand on this Clare said he was enthusiastic about Westpac's "My Bank" strategy.
"The My Bank strategy rewards customers for their loyalty, for the depth of their relationship with us on both the consumer and business sides. So I'd like to see some more focus on that. And certainly on the business banking side there are a couple of segments that we are under represented in - agri being one - which I think there's an opportunity for us to gain our fair share of market share there."
40 Comments
Westpac had a worried phase in 1st half of 2010 and would only lend up to 80% and performed intensive credit checking on customers wanting new or renewed loans. Perhaps thought the big property meltdown was alll on.
Maybe they were reading toomuch interest.co.nz?! BH was predicting banks calling up existing loans as equity fell...
Maybe next time/wave ....
And now Westpac repays the favour in spades.
Westpac has cut its standard variable home loan rate by 37 basis points to 7.09 per cent, deciding not to pass on the full half percentage point by the RBA.
http://www.smh.com.au/business/westpac-fails-to-pass-on-full-rba-cut-20…
What;s the point in RBA moving rates when the big 4 banks are not compelled to follow?
not far away! My workmate's old man has a farm on the Eyre, apparently he wanders around the farm in his birthday suit at times - so watch out!
Are you living here permanently?
I'm loving the footy, the power gave the crows a good run last week
funny how people were calling it cold here today, with a high of 17-18. Back to early - mid 20s next week, pretty good for May!
Things are looking quite good for the SA economy, with Olympic Dam and the building of 12 new submarines
It's a laid back lifestyle over here ........ but I need an occassional trip to Adelaide to jazz things up a bit ..... the REX flights are brilliant & cheap .
....... houses and farms are cheap . But it's a cliquey community , even Adelaidians are viewed with distrust & suspicion over here !
Cracker game of footy , well done the Crows .... watched at an Aussie mate's place ...... he sat rugged up & shivering beside a heater , the whole match ....... Gummy in shorts , T-shirt, and flip-flops !
Maybe the old bloke read this report Gummy and he's out and about to help out!
"The Census Bureau predicts that China’s population will peak in 2026, just 14 years from now. Its labor force will shrink, and its over-65 population will more than double over the next 20 years, from 115 million to 240 million. It will age very rapidly. Only Japan has aged faster -- and Japan had the great advantage of growing rich before it grew old. By 2030, China will have a slightly higher proportion of the population that is elderly than western Europe does today -- and western Europe, recall, has a higher median age than Florida.
China’s Challenges
China, notoriously, has another demographic challenge. The normal sex ratio at birth is about 103 to 105 boys for every 100 girls. In China, as a result of the one-child policy and sex- selective abortion, that ratio has been 120 boys for every 100 girls. From 2000 to 2030, the percentage of men in their late 30s who have never been married is projected to quintuple. Eberstadt doesn’t believe that having an “army of unmarriageable young men” will improve the country’s economy or social cohesion."
I reckon Aus rates will come down nearly to NZ levels. I tell my mates here that Aussie feels very much like NZ about 2-3 years ago, prior to the big OCR cuts
House prices in the capital cities here have fallen about 5% from peak, I reckon they will fall about 10% in total, like NZ. Like NZ, multiple cuts to the OCR will limit the damage
I think you might be confused. Ability to pay a mortgage stems more from have a JOB to pay for it!
I was reading the NZ business journal that commercial property sales, under $2M, are down 24% for the year. That's significant. The totally logical explanation is that there are plenty of vacancies in commerical property these days, because businesses are going into receivership. You see it all around- "for lease" everywhere these days. That means fewer jobs, or fewer people with the money to pay their mortgage.
Property owners- please kiss your renters, you are going to really need them to pay your mortgages! Few "investors" realize that in a Depression, rents go down, because tenants cannot afford to pay. The only postive cash flow properties will be in the slums, where 2 families live in the same house to make ends meet. All the rest will die a slow death, one of mortgagee sales in succession, as the years go by. It's already happening. Negative cash flow kills the host every time.
The only question property "investors" should be asking themselves is "do I want to be a slumlord?"
For the banks lending with only 5% or 10% equity is a safe bet - by the end of the year that equity will have grown by 10% as house prices surge as a result of the very friendly interest rates currently being offered!
Ignore banks published mortgage rates - they are all doing deals and keen to pinch customers off one another. Ask for a discount on published rates - they are very flexible!
Westpac, alongside ASB and BNZ, has been growing home loans in the above 90% LVR range in a move that has come under fire from David Hisco, CEO of ANZ NZ. Hisco told interest.co.nz in March that lending customers as much as 95% of the money they need to buy a house may not be the right thing to do and isn't the best use of funds by a bank in a world where banks are paying more for the money they borrow to on-lend to customers.
Another 'Tui' moment - A detailed results briefing from Australian parent, the ANZ Banking Group, shows ANZ NZ's net interest margin rose 12 basis points to 2.65% in the half-year to March 31 from 2.53% in the six months to September 30 last year. Read article.
There are medical names attributable to such behavioural inadequacies..
We are under represented in - agri being one - which I think there's an opportunity for us to gain our fair share of market share there."
Hmmm, well they only got %8 of the dairy conversions in Sth Canterbury this year, need to try harder. There is still a little bit of money in the economy that the banks are not getting and they want it.
They want to suck us dry like the giant leechs they are,
http://www.cassiopaea.com/cassiopaea/psychopath.htm
THE PSYCHOPATH - The Mask of Sanity
Special Research Project of the Quantum Future School
Imagine - if you can - not having a conscience, none at all, no feelings of guilt or remorse no matter what you do, no limiting sense of concern for the well-being of strangers, friends, or even family members. Imagine no struggles with shame, not a single one in your whole life, no matter what kind of selfish, lazy, harmful, or immoral action you had taken.
And pretend that the concept of responsibility is unknown to you, except as a burden others seem to accept without question, like gullible fools
Andrewj - sorry mate you've gone way above my head.
What's the problem with any service provider wanting to increase its market share where its under represented, or is it a case that's money's different. Is it that lenders are bad because borrowers need to be protected from themselves (are you saying dairy farmers are dumb dont know what they're doing? my experince would be very much the opposite), or just that you think that business and the world would operate better if there was no intermnediary between investors and borrowers
Please enlighten me
I know of one mob who mortgaged their free-hold family farm , in order to invest at a higher rate with some of the finance companies ...... they were making a nice margin on the deal , shame about the subsequent 100 % capital loss .....
...... now they're deeply in debt , and seriously struggling ...
There's just no understanding the behaviour of some people !
" Wants to grow rural lending market share"......another piece of the pie right!....the way I hear it, an increasing number of farmers are looking ahead to the day they can drop the bank rep into a cattle race ....with the bulls....in season.
Notice there has been NO COMMENT from the puppet on the Terrace....rural debt already dangerously high...critical need to reduce it....and here we have a parasite wanting to bloat it some more....go figure.
Wolly, lets take a look at what they're putting in the pie. See at how Rabo are getting their lending growth.
Rabobank New Zealand continued to build its rural banking business in 2011, recording net lending growth of $724 million.
Rabobank New Zealand chief executive Ben Russell said that during 2011, most of the bank's rural portfolio growth reflected refinancing activity rather than organic growth of existing customers.
Many farmers took the chance to repay debt in 2011 ......
http://www.stuff.co.nz/waikato-times/business/6684472/Rabobank-increase…
So, in the face of ppl paying down debt, and few/no new borrowers (fresh meat) no borrower switching, net lending went up, as a smaller group of existing clients refinanced (needed more money). Gee the real refinancing number could be more that $724m.
Shows us what happens when there is no South Canterbury Finance / lender of last ..... for that hospital pass.
Not all happy in Raboland
http://uk.reuters.com/article/2012/04/02/rabobank-idUKL6E8F20TL20120402
just so we remember...
http://farmbusiness.com.au/index.php?option=com_content&view=article&id…
Mr Moerland said Sir Henry van der Heyden's "unrivalled experience in both the global dairy industry and in the area of cooperative governance makes him an ideal and very fitting appointment to the board".
Sir Henry was a founding director of Fonterra Co-operative Group from the co-operative's establishment in 2001 and has held the role of chairman since 2002. New Zealand's largest company and a major global dairy player, Fonterra accounts for more than 25 per cent of New Zealand's export earnings. He is also a significant dairy farmer in his own right, with four family-run properties in the Central North Island.
A former New Zealand businessman of the year, Sir Henry is also a director of Auckland International Airport, Elevation Capital, Manuka SA and Pascaro Investments.
Sir Henry also joins Rabobank's Australian board.
Without the cooperative structure, Henry van der Hayden would not have progressed in farming and governance. Having benefited immensely from the foresight and investment of those before him, van der Hayden is hell bent on destroying the co-op and cashing in, in the name of the MAF, financial sector, and plain greed.
On formation of Fonterra Sir Henry knew capital structure imposed by DIRA was not compatible with co-op principles and would ultimately destabilise Fonterra, yet he recommended forging ahead. A few years later he became a board member on that bastion of all things cooperative the NZX. http://issuu.com/ruralnewsgroup/docs/dn_266_april_10.
In 2007 he tried to float 35% of the co-op but was scuttled by the shareholders council and general unease within the shareholder base.
Two years later, Trading Amongst Farmers (TAF) was proposed and after a misinformation campaign voted on to solve redemption risk in face of threats from foreign owned processors and droughts. Despite compelling evidence that external investment is deadly to the continuance of co-ops, Henry forges on. There is not a cooperative bone in his body. http://www.coopchampions.com/cc/blog/Entries/2011/3/11_Fonterras_Trading_Among_Farmers_Proposal_files/VanBekkum%20NZ-MAF%20submission%20TAF-Fonterra%20Mar11%20lowres.pdf
No longer best friends forever: A former stock exchange head, Mark Weldon, has criticised Fonterra's board
http://www.radionz.co.nz/news/business/105319/fonterra-fails-to-sell-be…
As others see it and why the NZX unhappy: Fonterra's partial float of $500 million:
FONTERRA, one of the world's largest diversified milk processing companies, has moved ahead with its major capital restructure, doling out roles to investment banks for its partial float worth at least $500 million. ..............
For the half year to January 31, Fonterra posted a rise in net profit to $NZ346m ($273m) on revenue of $NZ10bn. In Australia-New Zealand, revenue was $NZ2bn due to the tough retail environment and the "ongoing pricing battle that has resulted in pressure on major suppliers' margins".
It is planning to form a private market available only to farmer shareholders for trade between themselves, with Craigs to act as the registered volume provider, or "market maker".
But the co-op also plans to set up a fund for farmers to place shares into. The funds units would then be sold to the public and traded on the New Zealand Stock Exchange.
http://www.theaustralian.com.au/business/companies/fonterra-float-to-ra…
Mr Spierings noting ''return on capital has been kind of flat since 2009'' (is this a change in history). So what makes us confident that "return on capital" will be positive in the future years?
If Fonterra had good earnings on capital, supplier shareholders would provide support.
''In Australia,'' said Fonterra chief executive Theo Spierings in a presentation, ''there is pressure from the retail war going on at the moment, so there is pressure on our branded business.''
Other factors, including the high Australian and New Zealand currencies, rising costs and tougher competition were also partly responsible for the revenue drop, a spokesman later added....................
Fonterra unveiled a strategy update yesterday, with Mr Spierings noting ''return on capital has been kind of flat since 2009''.
Fonterra has embarked on a capital restructure to facilitate trading among its 10,500 farmer-shareholders in New Zealand, and could also establish a share-backed securities fund for outside investors, which could be a unit trust quoted on the New Zealand stock exchange.
Read more: http://www.smh.com.au/business/dairy-producer-fonterra-sour-over-supermarket-wars-20120329-1w14p.html#ixzz1uDoCouQk
Mr Spierings noting ''return on capital has been kind of flat since 2009'' (is this a change in history). So what makes us confident that "return on capital" will be positive in the future years?
If Fonterra had good earnings on capital, supplier shareholders would provide support.
''In Australia,'' said Fonterra chief executive Theo Spierings in a presentation, ''there is pressure from the retail war going on at the moment, so there is pressure on our branded business.''
Other factors, including the high Australian and New Zealand currencies, rising costs and tougher competition were also partly responsible for the revenue drop, a spokesman later added....................
Fonterra unveiled a strategy update yesterday, with Mr Spierings noting ''return on capital has been kind of flat since 2009''.
Fonterra has embarked on a capital restructure to facilitate trading among its 10,500 farmer-shareholders in New Zealand, and could also establish a share-backed securities fund for outside investors, which could be a unit trust quoted on the New Zealand stock exchange.
Read more: http://www.smh.com.au/business/dairy-producer-fonterra-sour-over-supermarket-wars-20120329-1w14p.html#ixzz1uDoCouQk
Greetings Henry_Tull, interesting posts once again. How strange for Mark Weldon to be criticizing Fonterras board. I recall him delivering a speech at the Large Herds conference last year in Rotorua ( which large scale farmers attend to further massage their egos) where he was effusive as a money man can be, about Sir Henry's wisdom and judgment. Not surprising, Henry was on The NZX board at one stage.
Mark Weldon is correct in that some Fonterra shareholders do have some marginal balance sheets, but the cooperative structure is not to blame. Ill conceived (promotion of value add) and self serving political and personal agendas manifested in the destructive DIRA , compounded by poor ‘cooperative’ leadership encouraged by political and omnipresent investment industry motives ( Mark Weldon, Geoff Taylor, John Key, Ruth Richardson, Wyatt Creech……), spawning the regulated and destabilizing Fair Value Share. This made us (suppliers) feel rich and powerful, and some of us got greedy. However the sense of parochialism and loyalty in dairy farming cliques obscures what others see as reality.
Mark Weldon is wrong, we don’t need external investment to strengthen balance sheets and move forward. Retentions are proven and work well. Why doesn’t someone provide an example of where a primary producer co-op has introduced external investment and prospered?
If Weldon and co wanted to invest and develop the dairy industry, nothing is stopping them doing so if they have the ability. But they shouldn’t be allowed to destroy the cooperative as that will be disastrous for supplying shareholders and the country as a whole.
Anyone with half a brain has to see that the NZ economy is in fact no more than a flow of credit wrapped up in a ponzi scheme. Endless borrowing with designer currency debasement care of the RBNZ acting on behalf of the parasites farming the property speculative based economy.
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