ASB the only major bank whose residential mortgage book shrank in June quarter despite rise in high LVR lending

By Gareth Vaughan

ASB, whose CEO is now targeting growing market share in the residential mortgage market, was the only one of the big five banks to see its mortgage book shrink in the June quarter.

ASB's annual report, including its general disclosure statement covering the June quarter, shows its residential mortgage book down NZ$39 million to NZ$37.391 billion in the three months to June 30.

The fall came in a period when banks battled hard for home loan customers in a low growth market by cutting advertised - or carded - fixed rates, offering significant discounts to advertised rates, paying cash incentives, and in some cases paying break fees for other banks' fixed mortgage customers in order to win their business.

Reserve Bank sector credit data shows housing loans up NZ$1.545 billion, or about 0.88%, to NZ$175.789 billion in the June quarter, a period that probably saw a fair number of customers' switching between banks. ANZ New Zealand, the country's biggest bank and owner of both the ANZ and National banks, dominated, - growing its residential mortgage book by NZ$1.09 billion in the quarter.

Westpac was next, growing home loans by NZ$326 million, Kiwibank grew residential mortgage lending by NZ$198 million and BNZ grew by NZ$156 million.

Among smaller banks - the Co-operative Bank, SBS Bank, TSB Bank and HSBC - only the Co-operative Bank grew housing loans in the June quarter, with its growth primarily coming from loans with loan-to-valuation-ratios (LVRs) above 90%.

ASB's high LVR lending also rose. Its loans with LVRs above 90% rose by NZ$271 million to NZ$2.482 billion, reaching 6.6% of its total book. Loans with LVRs above 80% but below 90% rose NZ$197 million to NZ$4.546 billion, or 12%.  Mortgages in the other categories disclosed - LVRs above 70% but below 80%, above 60% but below 70%, and between 0% and 60%, all fell.

Despite the overall fall in housing lending, ASB grew total advances to customers by NZ$219 million in the quarter to NZ$53.002 billion. CEO Barbara Chapman told interest.co.nz last month that after 6% growth in business lending and 5% growth in rural lending in the year to June 2012, she wants to grow ASB's home loan book in the year to June 2013. Meanwhile, mortgage brokers say that from being prepared to lend 70% of the money required for an apartment purchase, or even just 50% in the case of some smaller apartments, ASB is now prepared to go to 90%, something the bank hasn't denied.

June quarter profit flat

At NZ$153 million, ASB's June quarter profit was identical to the same period of last year. Although total operating income was up NZ$29 million, or 7%, to NZ$439 million, this was offset by a NZ$7 million, or 4%, rise in operating expenses to NZ$204 million, and impairment losses on loans of NZ$20 million versus a credit of NZ$8 million in the 2011 June quarter.

Still, ASB is coming off a strong year with record annual net profit after tax in the June year of NZ$685 million, a rise of NZ$117 million or 21%. The bank's annual return on equity rose to 19% from 17.2%, its return on average total assets climbed to 1.1% from 0.9%, its net interest margin rose to 2.16% from 2.01%, and its total operating expenses as a percentage of total operating income fell to 42.6% from 45.1%.

ASB also lifted its annual dividends paid to parent Commonwealth Bank of Australia to NZ$500 million from NZ$280 million.

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