What the Credit Crisis means to Banks
Put simply – banks have significantly increased their housing revenue through margin expansion. They have moved away from aggressive competition to taking margin. Even Kiwi Bank is not immune. Banks are safe … and profitable … end of story.
My back of envelope calculations put industry home loan profits at around $1,400m. Gross margins have increased from around 0.90% to 1.80% (doubled.)
What about the Credit Crisis?
The credit crisis has made it extremely difficult for the NZ banks to raise funds overseas. In the absence of offshore funding no bank can afford to aggressively acquire new volume, which limits competition. For a long while the banks have had 10% year-on-year profit growth. Most of this came off the back of the credit bubble. The issue now is where to get the profit growth – fatter margins anyone?
As for the nonsense coming out of the BNZ about not being able to pass on rate cuts – pull the other one. Is there such a thing as an impartial Bank Economist? I don’t have a problem with the banks pulling extra margin at the moment, they should, lets just keep them honest!
