New Zealand bank funding costs and margins

NEWS RELEASE
Date 6 July 2009
Time 10.00am

New Zealand bank funding costs and margins

The Reserve Bank today released an analysis of interest rate margins.

Reserve Bank Governor Alan Bollard said: "We have released this analysis to respond to a number of questions we have received regarding our stance on what room there still is for interest rate cuts.

"The paper notes the Reserve Bank is continuing to talk to the banks to clarify recent trends in their funding costs and margins. We will review these matters further in the Bank's November 2009 Financial Stability Report."

Summary

• A large part of the OCR cuts have been passed on to household and business borrowing rates, reflecting the soundness of New Zealand banks.

• However, about 100-150 basis points of the OCR cuts have been offset by higher marginal funding costs for deposit and wholesale funding.

• The spreads between marginal funding costs and floating mortgage rates have widened in recent months to historically high levels. Spreads on fixed-rate mortgages have also increased, but from historically low levels and are now more in line with historical norms.

• There is useful information in the Westpac analysis of bank funding costs, but we take issue with the use of average funding costs as an appropriate basis for marginal pricing decisions. The interest rate on a bank’s latest loan will more likely reflect current marginal funding costs than historical average costs.

• We are continuing to talk to the banks to gather information about their funding and pricing.

• Our next public review will be of these matters will be in the Bank’s November 2009 Financial Stability Report.

The analysis can be viewed at the following link:

http://img.scoop.co.nz/media/pdfs/0907/RBNZMargins6July2009.pdf
- Source URL

ENDS

© Scoop Media