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Household savings set to shrink as bank funding improves

Household savings set to shrink as bank funding improves, says RBNZ

By Paul McBeth

Sept. 13 (BusinessDesk) - New Zealand's lenders have found it easier to fund their lending profiles as strong local demand for term deposits and falling international wholesale rates pushes them well-beyond regulatory requirements, the central bank says.

Local banks' funding costs have dropped in recent months with non-European debt issues attracting investors looking for a safer bet, and as the pace of term deposits outstrips new lending by $15 billion to $13 billion in the year ended July 31, the Reserve Bank said in its September monetary policy statement.

That's put the banks in a well-funded position that's "materially ahead of regulatory requirements."

"With better access to offshore markets recently, there has been less pressure to aggressively seek retail deposits," the bank said. "Term deposit spreads to wholesale rates have receded from the top of their range seen over the past few years" and funding costs have "declined modestly over recent months."

Earlier this year the Reserve Bank warned bank funding costs were at risk of spiking higher amid the debt crisis in Europe, potentially feeding into higher local mortgage rates, forcing the central bank to keep the benchmark interest rate lower for longer.

It held the official cash rate at 2.5 percent today for a 12th straight meeting.

The central bank said local mortgage rates are largely unchanged since the June statement, with lenders targeting quality borrowers holding sizeable equity cheap loans.

"The floating mortgage rate remains by far the most popular term, with 59 percent of mortgages on floating rates," the bank said. That share has fallen four percentage points since a peak in April due to cheap short-term fixed rates, it said.

The improvement in lenders' funding profiles comes as household saving rates are set to slip back into negative territory as a percentage of disposable income for the next few years. The central bank expects the saving rate shrank 1 percent in the 2012 March year, and will contract 2.1 percent and 1 percent in the following two years, before returning to growth in 2015.


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