The obscene rush by the ASB and Kiwibank to increase mortgage rates within minutes of the Reserve Bank increase in the OCR is just cynical, extreme, profit gouging.

ASB, ANZ and Kiwibank had already increased rates in mid September, anticipating a possible move by the Reserve Bank.

In doing so ASB said that action “reflected increased wholesale funding costs and a generally increasing rate environment”.

“A generally increasing rate environment” is bank speak for “we can get away with increasing our rates to make even more profit so we’re going to do it”.

ANZ’s director of personal banking, Ben Kelleher, used a similar excuse today saying its mortgage rate rise “balanced its commitment to supporting people with their home-ownership aspirations” with the increase in OCR and the bank’s wholesale funding costs.

If the bank was truly interested in “supporting people with their home-ownership aspirations” it would have left the interest it charges on loans where it was.

Those excuses are the biggest load of bulldust that’s ever been advanced for putting up prices, especially when their costs have barely moved.

And here’s why.

1. The banks don’t lend out money they source through wholesale funding, nor do they lend out money people have deposited with them. Those sums are held as reserves. Every loan by a bank is money they have created themselves out of thin air at the time the borrower draws down their loan. It is a simple double entry bookkeeping exercise.

[See Money creation in the modern economy – Bank of England]

1. The Reserve Bank pays the banks interest on the reserves they hold on deposit with it at the same rate as the OCR. Those reserves include all the money people have deposited with them, any wholesale funding, and the proceeds of the government bonds they’ve sold to it in the past 18 months. Their interest income has therefore jumped by 25 basis points to 0.5 per cent on approximately $36 billion as a result of the OCR increase.
2. The banks still have access to wholesale funding from the Reserve Bank through its Funding for Lending programme, at the OCR rate of 0.5 per cent. If they are accessing wholesale funding from other sources that must be at less than 0.5 per cent.

Those commercial banks have been creating an average of $20 billion in new money every year, and that amount has almost doubled in the last two years.

No wonder KPMG’s Financial Institutions Performance Survey reported their profits increased in the three months to March 2021 by 20.69% to $1,64 billion.

No other business in the country would have increased its profit by 20 per cent in the first three months of this year.

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