BNZ grows residential mortgages with loan-to-valuation ratios above 80% in March quarter

By Gareth Vaughan

Hot on the heels of the Reserve Bank saying it's mulling introducing limits on loan-to-valuation ratios (LVRs), the first major bank to issue a General Disclosure Statement covering the March quarter, BNZ, has revealed another increase in residential mortgage lending with LVRs in excess of 80%.

BNZ's General Disclosure Statement  (GDS) shows total - on and off balance sheet - growth in residential mortgages with LVRs over 80% of NZ$127 million. Overall residential mortgage lending, based on BNZ's LVR disclosures, rose just NZ$139 million.

Although some banks wouldn't write home loans with LVRs above 80% at the height of the global financial crisis, they've certainly been doing so over the past year or so. BNZ's quarterly growth in home loans with LVRs above 90% continues a recent trend established by it, ASB and Westpac.

In the March quarter BNZ's residential mortgage lending with LVRs over 90% rose NZ$80 million to NZ$2.4 billion from NZ$2.32 billion at December 31 last year. Its home loans with LVRs between 80 and 89% also rose, by NZ$47 million to NZ$1.9 billion.

High LVR lending has come under a renewed spotlight recently with Reserve Bank Deputy Governor Grant Spencer saying earlier this month that putting limits on LVRs is one of four policies the central bank views as "viable candidates" to put the brakes on any future sustained boom in credit and asset prices.

ANZ boss squares off against rivals

David Hisco, CEO of ANZ which hasn't been growing its home loans in the above 90% LVR space, hit out at his rivals in March, telling interest.co.nz that lending customers' as much as 95% of the money needed to buy a house isn't necessarily the right thing to do for the customer, and nor is it the best use of funds by a bank.

Westpac's new CEO Peter Clare recently told interest.co.nz that Westpac took a conservative approach to its high LVR lending in terms of the customer's ability to service the loan, and adds a buffer to cover interest rate movements. Clare said Westpac had helped nearly 150 families into their first home in the last six months. And in February  ASB CEO Barbara Chapman told interest.co.nz high LVR residential mortgage lending involved some very high quality customers, notably first home buyers, but was something ASB watched closely.

Interviewed about BNZ's half-year results recently, the bank's chief financial officer Ken Christie told interest.co.nz BNZ had a lower proportion of over 80% LVR residential mortgage lending than its major rivals.

Lending conditions ease

In its Financial Stability Report released this month the Reserve Bank said competition was increasing in the the banking sector, most noticeably for housing lending where all banks have since cut their fixed-term mortgage rates. The central bank also said the overall terms on which banks are offering credit to borrowers have eased over the past six months. It says aggregate bank lending grew 3.3% in the year to February 2012 following annual growth rates close to zero in 2010. However, despite this increase, credit growth remains very subdued compared with the double digit growth common between 2002 and 2008.

Meanwhile, BNZ's GDS shows it grew gross loans by NZ$395 million in the quarter to NZ$58.296 billion. Total customer deposits rose NZ$716 million, almost double the lending growth, to NZ$33.883 billion Alongside Westpac, BNZ has recorded the strongest lending growth of the big four banks over the past couple of years.

Based on its "loans and advances to customers" disclosure BNZ grew housing loans by NZ$156 million to NZ$27.782 billion with other term lending, comprising business and agriculture loans, up just NZ$68 million to NZ$26.772 billion. In the December quarter by contrast BNZ grew other term lending by NZ$571 million and housing loans by NZ$244 million.

In its recent half-year results Australian parent National Australia Bank (NAB) said BNZ lifted its market share in agribusiness lending during the six months to March to 21.1% from 20.8% at September 30 last year, with its market share of housing lending stable at 16.2%.

BNZ's GDS also shows the fresh NZ$400 million of capital disclosed in the bank's half-year results was raised by it issuing 400 million shares at NZ$1 each to NAB. As of March 31, BNZ had a tier one capital ratio of 9.59%, which is up from 8.76% at December 31 and exceeds its 6% regulatory minimum. Tier one capital represents the shareholders' funds in the bank. BNZ's total capital ratio was 12.39%, up from 12.17% and above the 8% minimum requirement.

BNZ's total impaired assets fell NZ$85 million in the three months to March 31 to NZ$529 million, although its 90 days plus past due (but not impaired) assets rose NZ$23 million to NZ$214 million.

Mortgage approvals strong

The latest weekly Reserve Bank mortgage approval figures, out yesterday, show 7,026 mortgages approved in the week to May 18 valued at NZ$1.195 billion. It's the first week approval volumes have topped 7,000 since the week ended March 30, and the 13th of the last 14 weeks where the value of approvals has exceeded NZ$1 billion with the week Easter fell in the exception.

The most recent Real Estate Institute of New Zealand figures, for April, showed nationwide house sales volumes at 5,676 down 4.1% in seasonally adjusted terms from  7,330 in March, which was the highest monthly figure since November 2007. The nationwide median house sale price in April was NZ$365,000, down NZ$5,000 from March's record of NZ$370,000.

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