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A reserve bank plan could add thousands to mortgage payments: Westpac



Westpac New Zealand CEO David McLean. The Bank has published

Peter Meecham

Westpac New Zealand CEO David McLean. The bank has published "scenarios" that suggest that the Reserve Bank's plan to force banks to hold more capital could add more than $ 6,000 a year in the cost of repaying the "average housing loan in Auckland".

The plan to require banks to hold more money to help with future financial shocks could add $ 6000 a year to the average Auckland mortgage, Westpac says.

On Friday morning, the bank published its statement on an investment consultation of the Reserve Bank, which it plans to hit the borrowers hard.

The central bank suggests that banks be obliged to hold more capital in the balance sheet so that creditors can withstand the financial crisis for 200 years.

New Zealand's four largest banks, ASB, ANZ, BNZ and Westpac – all Australian owners – would have to raise capital by 16 percent, an increase of 20-60 percent.

READ MORE: Reserve Bank Plan "has significant negative consequences for our country": banks

It is estimated that the plan will require banks to increase $ 20 billion by the Reserve Bank, although Westpac said it expects this number to be higher.

Westpac claims that the reserve bank's proposals could add 100 basis points (1 percentage point) to borrowing costs in New Zealand.

It released a chart of "scenarios" of what this could mean for loans in various parts of New Zealand, from an extra $ 6008 year in borrowing costs in Auckland, $ 3251 in an abundance bay, $ 3773 in Wellington, $ 2742 in Canterbury and $ 3208 in Otago .

Filing Westpac for a reserve bank proposal warns against sharply higher mortgage payments in all parts of New Zealand. Calculations are based on average house prices in each area, for 20% depositors.

Westpac

Filing Westpac for a reserve bank proposal warns against sharply higher mortgage payments in all parts of New Zealand. Calculations are based on average house prices in each area, for 20% depositors.

According to the estimate, the calculations are based on average prices in each region with a 20% 30-year mortgage deposit with an initial rate of 4%.

Westpac's filing, written by Regulatory Director General Mark Weenink, said the plan would require banks to raise $ 25b on current loan levels, including $ 4.5b for Westpac.

However, Westpac said that the amount to be increased will increase in line with any increase in loans.

"In order to finance growth of 3% over the proposed five-year transition period, [Westpac] an increase would be required [core tier one] $ 6.5 billion, "Weenink wrote.

The Reserve Bank said it is currently analyzing the 164 submissions it received regarding its proposals.

"We will respond to the questions, evidence and opinions in these answers when we have finished analyzing all the answers that have been sent to us," the spokesman said.

Reserve Bank Governor Adrian Orr, before asking for warnings about what they could do for borrowing costs, said he expected competitive forces to play if banks were forced to hold more capital.

Former New Zealand Prime Minister Bill English reportedly said on Thursday at a conference in Sydney that he believed that Australian-owned banks "bluffed" in their warnings about the impact of the Reserve Bank Plan.

ROBERT KITCHIN / STUFF

Former New Zealand Prime Minister Bill English reportedly said on Thursday at a conference in Sydney that he believed that Australian-owned banks "bluffed" in their warnings about the impact of the Reserve Bank Plan.

All Talking – Former PM

Former Prime Minister Bill English said at a conference yesterday that he believes that banks owned by Australian banks are bluffing when they warn that they might return from loans in New Zealand as a result of the plan.

"[Threats] the withdrawal of capital is largely bluffed. Australian shareholders and Australian banks do very well outside of New Zealand. They generate good returns. "I think they'll stick around," she said in English Australian Financial Overview.

"Meanwhile, for all the rage over the last 15 years, no Australian bank has raised its capital. What does it tell me? What should it tell you?

Too conservative

Westpac's filing said it supports the Reserve Bank's plan to ensure that New Zealand banks are well capitalized, but claimed that the proposals are "unnecessarily conservative."

"Suggestions … go much further than needed to achieve these goals, go beyond international standards and create productivity," Westpac said.

"Given the complexity of the combination of untested inputs and the likely broad impact of proposals, a comprehensive independent cost-benefit analysis is required."

On Monday, the Reserve Bank revealed that it was "in the process of appointing external experts to independently review the analysis and advice underlying the proposals."

He expects to publish a summary of the submission in June, which will be the final decision on the publication by the end of November.


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