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Reserve Bank Governor says our banks need to take a long term view on their customer base 'because it is a lifetime of earnings they get off each customer'

Public Policy / news
Reserve Bank Governor says our banks need to take a long term view on their customer base 'because it is a lifetime of earnings they get off each customer'
orr-fec-dec22
RBNZ Governor Adrian Orr (centre), flanked by Assistant Governors Juliet Tainui-Hernandez and Greg Smith at the select committee on Wednesday.

Reserve Bank Governor Adrian Orr says the country's banks are "up for" the task of supporting their customers through the strains of much higher interest rates that are now coming through.

Orr appeared before Parliament's Finance & Expenditure Committee (FEC) for the RBNZ's annual review on Wednesday, and he was asked by MPs about banks' high levels of profitability and what they were now doing to help out customers.

With the RBNZ firing up the Official Cash Rate in the past year from 0.25% in October 2021 to 4.25% now to counter 7.2% annual inflation, fixed rate mortgage borrowers are seeing their interest rates soaring from perhaps the 2%-3% range last year to somewhere around 6%-7% now. 

Orr said banks need to be well capitalised - and the RBNZ has been working with them to make sure that is the case. And they need to have sound funding and be highly liquid. 

"Banks need to be able to work with their customers through good times and bad," Orr said.

"And they need to take a long term view on their customer base because it is a lifetime of earnings they get off each customer.

"So, through the next period we are saying to them 'you need to be in touch with your customers'. They want to be in touch with them. The NZBA [banking industry body] are out there publicly saying they want to be helping and working with the customers.

"What are the practical things they can do? Awareness helps. Second one is around interest only. The other one's around deferrals. Other ones are around assistance in alternative forms of financing or activity etc. All of the things that you would expect a bank relationship to provide.

"And so the banks are well aware. They are telling us publicly they are up for it and so that's a great position to be in."

In his opening remarks before the FEC, Orr noted that New Zealand has a near record low unemployment rate of 3.3% and exceptionally high labour force participation rates.

Households have accumulated financial savings, with average household incomes rising in line with inflation.  Nominal wage rates have risen, with incomes further bolstered as people moved jobs to earn more, worked longer hours, or gained promotions.

Average hourly earnings growth for the private sector was 8.6% in the year to September 2022, compared with Consumer Price Index inflation of 7.2% in the same period.

"As interest rates rise, we expect spending to slow and unemployment levels to increase as more people join the workforce over the coming year.

"Even with the expected slowdown in the period ahead, it is anticipated that the level of employment will remain high," Orr said.

He also commented on two much discussed initiatives the RBNZ launched in 2020 as the Covid pandemic took hold.

These were the Large Scale Asset Purchase programme (LSAP), through which the RBNZ originally bought $53 billion worth of Government bonds and the Funding for Lending programme (FLP), through which banks could borrow relatively cheap money priced at the OCR level. The latter programme was closed off on December 6 with about $19 billion borrowed by the banks.

Orr said the LSAP was highly effective in response to the liquidity crisis that emerged in early 2020 and in lowering longer-term interest rates.

The FLP also gave banks confidence that a stable and secure funding source was available during a period of heightened financial market uncertainty. 

"Banks were able to continue their business of financial intermediation, avoiding a credit squeeze or worse.

"This lending programme needed a period of commitment from the Reserve Bank in order to provide banks the confidence to include the use of the facility in their forward plans. In hindsight, it could have been designed with more flexibility."

Orr reiterated that the interest rate charged for accessing funding under FLP rose in line with the OCR, "and the volume accessed accounted for only about 2% of bank funding".

"Our experience with both these tools has built our capability to respond to unexpected events in future."

Orr faced a number of questions from MPs over staff turnover.

He said the turnover rate for the central bank as at June 30, 2022 was 21.7%.

"This aligns with the overall public sector rate of 21.7% for the same period, but includes the necessary bank-wide re-organisation.

"Similar to other organisations we are experiencing higher than normal levels of staff turnover, in part promoted by the ongoing impact of Covid-19.  We are however seeing strong demand in the marketplace for our roles and a high calibre of candidates coming on board."

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46 Comments

Let me translate that, Orr to banks -    "Suck it up Buttercup"

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6

Banks don't give a rats. Furthermore, the banks wear the pants. Not Adrian Orr. 

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21

Everyone is being so kind to each other.

I think I may bookmark this one for reference during the middle of the crisis -> when half the properties and businesses for sale are mortgagee sales, and foodbanks are flat out.

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6

Makes me wonder what he has been smoking......

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0

We found out the real truth about "kindness" the other day "you arrogant prick"

Its like when the facade around emperor palpatine lifts and the sith lord shows its face, the veil has been lifted.

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0

Well he has just told them that the Honeymoon is over and it is time for them to share the Load

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0

Wow.. What a statement "Banks take a lifetime of earnings of a person getting a mortgage". I would go one step ahead, they take life time of earnings of a family who takes a mortgage these days.

But the question here is for the governments of past and present " Should this be the case?"

How have we reached a stage in NZ that to afford a roof over the head, we have to pay life time of earnings and the beg and plead to banks if something goes wrong? Who got us to this stage?

If we still do not learn, then not sure we ever will. 

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25

Even better than that.  A young couple walks into ANZ in 2021, with a $120k deposit to buy a $600k house.  ANZ, with all their lending expertise and access to a wealth of data, takes the lead on the risk assessment based on interest rates in the near future not exceeding 5.8%.  

That test rate, 12 months later, is 8.15%.  "Oops, sorry about that.  Why didn't you 25 - 30 year old's take out a Finance Degree before deciding to buy a house, you morons, you should have known interest rates cannot stay low forever".  

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18

Hey to be fair it hardly needs a finance degree. 

Everyone i know that is overleveraged seemed to think that someone would bail out the housing market in a crash. the smart ones took the trouble to read up themselves and stayed tight. There will be lots of 'victims' of rbnz/government/banks etc next year i guess.

 

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3

True.  Not everybody is in to privatize the profits and socialize the losses.  There will be FHB who on the advice of the bank took out a mortgage to buy a house, mistakenly assuming the bank wouldn't set them up as a sub-prime borrower.  It's easy to hit them with a dose of "tough love" and tell them they should have known better though. 

Maybe we can apply the same moral hazard to electrical work.  While you did hire a qualified/registered electrician, you should have known a 10amp device shouldn't be connected to a 30amp breaker, claim denied.

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3

To be fair to that couple, all the experience for the last few decades is that someone WILL bail out the housing market when things get dicey. That is how we got into this mess in the first place. How long do you keep putting off the rest of your life, waiting for the correction that should have happened 10+ years ago? 

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0

When you get to mark your own homework, you always get good grades. The idea that wages are increasing at the rate of inflation is nonsense. It's literally impossible and a false comparison. 

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13

How is banking in NZ not declared a monopoly or anti-competitive environment? 

 

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13

Because our dominant, but conflicted corporate media have no appetite to hold its masters to account.

 

 

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1

Lets just hope the RBNZ don't ban cash and go digital.

https://www.stuff.co.nz/business/130764603/its-chaotic-eftpos-terminals…

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5

I think this was some classic NZ 'reporting'. Our terminals weren't down at all today in Auckland, and neither were a couple of friends businesses I checked with. A couple of people lined up at Countdown and suddenly it's 'chaos' nationwide.

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4

My Mother in law card got declined and her main worry was that the retail staff thought she might be pour...(she is)

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2

7% interest rates should be affordable. Except when the central bank holds rates far lower than is prudent for too long, the trading banks alow rampant lending, and then the govt gooses the economy at the same time.

7% on a mortgage of 300k  is one thing..   30 years at 900 per fortnight 

7% on a mortgage of 900K is a whole other issue  2700 per fortnight...

Its not the interest rates which are the problem, but poor fiscal decisions.

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9

Yeah.

when times are tough and job security becomes an issue people are wonder why they ever thought it was a good idea to pay $5,500 a month in interest on a wooden shoebox 

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3

Yeah getting that shitebox 300k cheaper would mean overseas holiday every year...    or like many of us did, no overseas holidays for 15 years and getting the man off our back so we could have a good retirement/good time with kids etc

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3

A question to ya'all. How many tried to fix at %2.99 for 5 years a year and a half ago and were turned down by their banks? Got a story to tell?

My bank turned me down using fairly spurious reasons, poorly worked through numbers and consistently failed to communicate. Now I'm paying many 000's of additional interest and paying a much higher monthly amount. Funny how - with no material change in my position - I can somehow meet the much higher monthly repayments now but apparently couldn't meet a much smaller amount back then.

Do you think those interests rates were ever real? Were they only for new borrowers? Should I be going to the Banking Ombudsman?

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5

Makes no sense...

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1

Very strange

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1

yes goto the banking obudsman

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6

Makes no sense... The only reason you wouldn't be able to is if your loan term was less than the fixed term

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0

Clearly you should have switched banks.

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1

Odd? Why would they not fix at the time advertised rates? Sounds suspicious...go to ombudsman 

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1

99000 new mortgage commitments were entered into in 2021 alone. That's 270 new mortgages a day. 

FHB, Investors, Trader uppers, refinancers, home equity extractors. All taking advantage of lower rates to load up on debt. 33 Billion of total mortgage debt added in 2021 alone. Too much of it at ridiculous DTI levels.

Did the RBNZ care? Or was the wealth effect just too good for their political masters?

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10

When that lot refinances it will take a lot of daily coffees out of the economy

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5

I don't think that they did it for their political masters.    I think they did it for their banking mates.

Cui bono?

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2

It's just like saying the government is "up for" taking care of their people, because it's in their long-term interest to take care of the people who support them.

 

Well we all know that is all baloney right? lol  If I wanted to pay a big salary to someone to repeat generic phrases and finger point, I would've just hired a monkey or a parrot.  Would be much cheaper.

 

 

-7

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4

So select committees ask lots of patsy questions as well

I know the Guv's role  is meant to be above political interference but given Orr's level of mistakes, now accepted, and his political behaviour he should be sacked after next election

 

 

 

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2

is there a suggestion that banks will be loyal to their customers?when we know that new customers usually get a better deal and long term customers are exploited.Orr knows hard times are coming and wants to lay the onus on the banks to deal with it,there will be no mirrors at the reserve bank.

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4

Are customers loyal to their banks?

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0

Mr Orr's doing it again. He's fibbing. 

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"Banks need to be able to work with their customers through good times and bad," Orr said.

"And they need to take a long term view on their customer base because it is a lifetime of earnings they get off each customer.

Mortgage customers are paying off an IOU to the banks with wages which are likely to be proceeds of a bank IOU to an employer.

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4

Yeah right… when push comes to shove the aussies will be giving the indebted a shove!

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1

I understand that Kevin O'Leary is appearing before the FOMC. Pfft. We get the world leading, one and only Mr Orr.

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1

Kevin O'Leary  says the U.S. Fed is unlikely to hike interest rates three times in 2022

https://www.youtube.com/watch?v=7negWSAI_DU

No credibility , just like you HW2

Jack in a box

Pent up demand

Train leaving the station

 

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3

That makes two of us I guess 🤣

However in my defence all of the commenters, even some with extreme views say property will bounce back. It is simply a matter of time and I have said that 

The comparison of getting to the motorway early before rush hour still holds

Lets see what JP says overnight

Pleasant dreams 

 

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1

It takes ~6~ hours for a tide to go out. HW2's comments and general commentary read like someone saying, one hour after peak high tide, that "High tide is coming again, the water will rise again"

On face value HW2 is correct, we know that the tide will go out and then come back in again. HW2 - I think it would help your position if you accepted that we are no-where near low tide yet. Even once we hit low tide it is going to take a significant period of time for high tide to return. 

In fact, due to how high inflation is, I'm picking a significant slack tide situation where instead of a 30 minute period of slack tide, we could potentially see a slack tide that lasts for hours. 

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1

Rbnz lifted  ocr banks lifted interest rate  

means  rbnz asking banks to pay more interest to rbnz for the borrowings 

and at the same time  rbnz asking banks to help customers …. who is robbing here , we all know that banks are robbing, but ocr lift is not by banks….which pocket is the money going into ?  Govt.

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0

I bet support translates to not bankrupting people if there is a shortfall after their houses are sold by way of mortgagee sale. 

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There is so much obfuscation here that it is astounding. 

"Banks need to be able to work with their customers through good times and bad," Orr said. 'you need to be in touch with your customers'

The only customers the banks are interested in working with are those who have debt to the bank. Depositors or savers are just seen as a liability and are routinely ripped off, despite the fact that they provide a portion at least of the capital required to back up their lending. 

Banks, like many business's are too quick to claim profits and pay dividends to their shareholders than to hold reserves to ensure their customers and the economy they operate in remain secure.

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1

Orr what an arrogant incompetent prick.

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1

This "inflation fighting" by the NZRB by raising the OCR to raise interests rates is nothing more than a wealth transfer from the poor (indebted) to the wealthy (debt free). 

Prove me wrong.

 

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