Big 5 banks, combined, post NZ$3.3 bln annual increase in home loans where the borrower has less than 20% equity

By Gareth Vaughan

The country's big five banks, combined, grew residential mortgages where the borrower has less than 20% equity by NZ$3.3 billion, or 10%, during 2012.

Across the big five - ANZ, ASB, BNZ, Kiwibank and Westpac - home loans with loan-to-valuation ratios (LVRs) above 80% are now up NZ$4 billion, or 12.5%, to NZ$36 billion since the Reserve Bank first mandated the banks break down their home loan books by LVRs in 2008.

Last year's NZ$3.3 billion growth in higher LVR loans suggests more than half 2012's NZ$6.3 billion annual growth (based on Reserve Bank sector credit data) in residential mortgages came in loans where the borrower had less than 20% equity.

As a percentage of their overall home loan books, ASB and BNZ have increased high LVR lending since 2008 while ANZ, Kiwibank and Westpac have reduced theirs.

Setting limits on LVRs is one of four so-called macro-prudential tools the Reserve Bank will issue a consultation paper on next month.

Big 2012 rise for ANZ through 'reclassifications'

The bank with the biggest increase in home loans with LVRs above 80% last year was ANZ. ANZ's growth includes a big December quarter spike in residential mortgages with LVRs over 90%, with these up NZ$731 million. ANZ CEO David Hisco has been an outspoken critic of rivals doing 95% mortgages.

Hisco attributes his banks recent surge in high LVR lending to "a reclassification of existing assets rather than any change in lending stance".

As of December 31, borrowers had less than 20% equity on 24% of ANZ's residential mortgage book, or NZ$12.9 billion worth of loans. That's up NZ$2 billion from NZ$10.9 billion on December 31, 2011, which represented 21% of the bank's  home loans.

ANZ appears to have started its LVR disclosures from September 30, 2008. At that point it had NZ$14 billion, or 26%, of its home loans at LVRs above 80%.

ASB sees 'lot of good quality business'

In contrast to Hisco, ASB boss Barbara Chapman says her bank is chasing the high LVR end of the market. During 2012 ASB grew home loans with LVRs over 80% by NZ$777 million to NZ$8.2 billion, or 21% of its home loan book, up from 20% a year earlier.

Chapman recently told interest.co.nz: "I think there's a lot of good quality business in the 80% plus market and we're focused very much on the quality of the customer in that area. I'm absolutely committed to continuing our focus on that and we're not seeing any difficultly in terms of arrears coming out of that book."

As of March 31 2008, ASB had NZ$6 billion, or 15%, of its home loans at LVRs above 80%.

Westpac 'maintaining discipline'

Both Westpac CEO Peter Clare and head of retain banking Ian Blair have recently emphasised their bank is targeting home loans with LVRs below 80%. Clare said Westpac was "maintaining discipline" on pricing and risk in a subdued but competitive environment. And Blair noted Westpac's fixed rate special offers required the borrower to have a minimum of 20% equity.

During 2012 Westpac's high LVR loans fell both in dollar terms and as a percentage of its overall home loan book. They fell by NZ$100 million to NZ$8.5 billion. That left them at the equivalent of 24% of Westpac's total home loans, down from 25% a year earlier.

As of March 31, 2008 Westpac had NZ$8 billion, or 26% of its home loans at LVRs above 80%.

High LVR loans unchanged as a percentage of BNZ's total book

BNZ's home loans with LVRs above 80% rose NZ$300 million in 2012 to NZ$4.1 billion, but as a percentage of its overall residential mortgage book, were unchanged at 14%.  Like ANZ, BNZ appears to have started its LVR disclosures from September 30, 2008. At that point it had NZ$2.9 billion, or 11%, of its home loans at LVRs above 80%.

'Reclassifications' a feature for Kiwibank too

Through 2012 Kiwibank's home loans with LVRs above 80% rose NZ$284 million to NZ$2.3 billion, or 19% of its total residential mortgage book, up from 18% a year earlier. Kiwibank says of the total, NZ$501 million worth stem from "Welcome Home" loans where credit risk - to Kiwibank - is mitigated by the Crown.

Kiwibank CEO Paul Brock said reclassifications had been a factor in Kiwibank's recent increase in high LVR loans. He said when weighing up doing such lending Kiwibank looked at a potential customer's serviceability criteria. There had been the "odd tweak", but not a relaxation in serviceability criteria in the past couple of years. More broadly Brock said there was more high LVR lending in the Auckland market than elsewhere.

Kiwibank had NZ$1.1 billion, or 23% of its home loans at LVRs above 80% as of March 31, 2008.

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