Banks Have Only Themselves To Blame

If house prices fall as much as the BNZ is warning, banks should look in the mirror, Progressive leader Jim Anderton said today.

He said that the banks provided the fuel for a debt boom and authored their own misfortune.

“It’s a bit late to be cautious after the fact.

“Total lending rose between February 2007 and February this year by $36,679 million. That was an increase in total lending of 14.3 percent.

“In other words, debt was growing much faster than inflation and underlying real incomes. Obviously, that was fuelling the house price increases that the banks now know could be reversed.

“Nearly half of the increase in lending - 46.9 percent - was for households. Only 12.1 percent was for agriculture, 10.4 percent for property and business services and 15.3 percent for financial institutions.”

Jim Anderton said that without housing loans, the banks’ balance sheet would be halved at least.

“The banks have provided the fuel that has pushed up house prices over a fairly long period now.

“House prices have been rising faster than the rate of inflation as a result of the banks’ belief that loans secured against bricks, weatherboards and mortar simply could not fail to provide profits for the banks. Although wages and incomes in New Zealand have been growing quickly, they have not been growing at a pace that could keep up with inflating house prices.”

He said that banks should have been much more cautious with their mortgage lending.

“It’s all very well to warn now that house prices could fall. But where was the BNZ a year ago when it was mainlining another 14 percent increase in indebtedness?

“The banks’ own internal audit practices appear to have failed to alert them to their risky practices.

“It’s a bit rich for the pot to now be calling the kettle black!”

ends

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