the problem
The Official Interest Rate (OCR) is on hold but interest rates continue to rise.
It was revealed last Monday that ASB became the first bank to offer a two-year prime rate of more than 7%. The previous week saw a wave of changes in interest rates on home loans.
That prompted Infometrics CEO Brad Olsen to say that banks should provide more commentary to explain why interest rates are higher. He said that while international moves were leading to some increases in long-term rates, it was not easy for him to explain the short-term increases.
We asked the banks: What’s really going on?
their arguments
ASB
Adam Boyd, executive general manager of personal banking at ASB, said the fundamental factors that affected how interest rates on home loans were set – OCR rate, swap rates, interest rates on customer term deposits and the cost of external financing – had all increased. Noticeably in the last two years. Year and a half.
“This changing economic landscape has resulted in higher bank borrowing costs in a relatively short period of time and this is reflected in our lending rates.
“Over the past two years, we have not increased fixed interest rates on home loans in line with these increases, and continuing to write home loans to customers below the cost of principal is not sustainable. The current high interest environment also means that we are able to adjust interest rates On term deposits, which we’ve increased tenfold this calendar year.Of all the major banks, we hold common market leading or market leading rates over eight periods to further encourage and support savers.
Benz
The New Zealand central bank sent out a short statement: “The cost of funding, which is mostly determined by the rates at which banks can borrow abroad, is rising and this increase is being passed on to interest rates.”
ooze
ANZ said term interest rates were influenced by financial markets’ expectations about the direction the OCR rate would go over time.
“This is particularly the case for short-term rates of up to around two years. Beyond the roughly three-year mark, global factors become more important in determining the level of interest rates. Market expectations change every day. OCR is only one factor that determines bank lending rates.” , but it is a very important factor.
“Although mortgage interest rates and floating mortgage rates move very closely together, changing expectations about future OCR decisions often cause fixed mortgage rates to go up or down. When reviewing interest rates, we take into account Consider a range of factors, including impact on customers, underlying cost of money (including wholesale price movements and OCR) and competitor activity.
Noting that since October 2021, the official cash rate has increased by 525 basis points, the bank said it has taken a balanced approach to interest rate movements on lending and savings.
Ella Bates Hermans/Staff
Banks, like any business, want to charge as much as possible. This is what it means for your interest rates.
She said the changes in each area were similar.
“During that time, interest rates on ANZ risk deposits and 12-month principal term deposits have increased by 4.30% and 4.55% respectively, and interest rates on 1-year floating and fixed home loans have increased by 4.20% and 4.46% respectively. Since the interest rate decrease in November 2020, the wholesale rate of 6 months and 1 year have increased by 5.45% and 5.61%, respectively.The interest rate on one-year fixed housing loans has increased by 4.76%, and the interest rate on one-year time deposits has increased by 5.10%.
“We know the cost of living and rising interest rates have an impact, and we closely monitor how we manage our clients; and as people come in for home loan repairs, we reach out to them to make sure they are aware of the options for managing premiums and offering reassurance and support to those who need it.
Kiwi bank
Peter Brooking, Kiwibank’s head of home and investment products, said banks have to make business decisions about where to price their home loan books.
“Kiwibank takes into account a variety of factors when setting our interest rates. The key factor for us is balancing interest rates between depositors and borrowers so that all of our customers get a fair deal.
“Specifically, the fixed interest rates on our home loans are affected by the various cost of funds per semester. For example, the fixed interest rate for a two-year home loan is based on the cost of Kiwibank acquiring that money for two years. This cost is due to a number of factors That includes the term wholesale interest rates and the cost of Kiwibank to borrow money from depositors.
“As interest rates move with the economic cycle, Kiwibank supports customers through the current high interest rate environment through our proactive communication program for customers heading for higher interest rates.”
Westpac
A spokesperson for the bank said: “Changes in interest rates generally reflect changes in the cost of funding. This could include factors such as movements in wholesale rates, the rates we pay for deposits, as well as movements in OCR. We are also looking for opportunities to introduce Special offers so that customers have additional options and flexibility to consider what best suits their needs.
Is this enough?
Olsen said the responses made it clear that OCR was a big driver of interest rates, but that there were other things at play, including what banks pay depositors, as well as international markets and swap rates.
“Some of those details, how much more diversified our products are and why, that helps. If they can do it every time, I really don’t think that’s a big ask given how important it is. I don’t think everything needs an explanation at all, I can understand that This is a bit stressful but given how these changes are affecting families, it seems like a reasonable expectation for some information.
“There were times when I called and said, ‘What do you think motivated this?’ and we ran the numbers and said, ‘Honestly, I have no idea.’ Other times we said, ‘Look, there is a reasonable decision behind this.’”
Not surprisingly, he said, none of the banks indicated their net interest margins, the difference between the cost of funds and what they charge for borrowing. “This will increasingly become an important measure that people will focus on when banks release their reports. It should be one of the most important metrics to be reported on.”