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The bold is my emphasis.
The Dominion Post | Saturday, 7 April 2007
Banks are back in the gun for providing too much debt too easily to too many people, Roeland van den Bergh reports.
Titahi Bay pensioner John Watson was bemused when his bank offered to increase his credit card limit by 50 per cent. At 86, he is looking to liquidate assets, not take on more debt.
Mr Watson says he uses his National Bank Visa card a couple of times a month, never comes close to his "minuscule limit" and pays off the full balance each month, avoiding interest costs.
"They should have known that, as a low user of it, I didn't need this kind of offer.
"It upsets me when we have the problem of easy credit, and at the same time that this is going on the banks are virtually thumbing their nose at the situation," Mr Watson says.
But credit offers including mortgage top-ups for those special purchases hit "valued" customers' letter boxes thick and fast from the big banks seeking to satisfy an insatiable appetite for consumer and housing debt.
The aim for the bank is to encourage customers to spend up large, earning them revenue from high interest charges.
Bank workers, including those at Bank of New Zealand, say they have been under increasing pressure to sell debt to customers, despite taking industrial action more than a year ago in an attempt to remove the direct link between sales targets and their pay.
Their union, Finsec, is about to start a new round of wage bargaining with Westpac, and is again using the debt argument for leverage.
Staff at Westpac and Bank of New Zealand can earn more if they meet sales targets, especially for lending.
"Bank staff want to be rewarded for good service, rather than for selling ever-increasing levels of debt," bank workers union spokesman Andrew Campbell says.
Westpac call centre staff must offer a credit card or permanent overdraft application to customers who ring asking for a temporary overdraft, he says.
Call centre staff estimate that most requests for a temporary overdraft come from beneficiaries effectively looking for an advance on their next benefit payment, Mr Campbell says.
Westpac spokesman Mark Watts says outstanding overdraft balances have declined by 8 per cent in the past year. "So there is no concerted push, there is no conspiracy."
But David Russell of the Consumers Institute says there is a clear attempt by the bank to put low-income people "in hock" for the long term.
Banks are increasingly selling debt not on the request of the customer, but at the suggestion of the bank.
"There is a subtle difference," Mr Russell says. "There needs to be an understanding of the disparate bargaining strength between a bank and an individual. They need to exercise some restraint in the exercise of their power. That is a social responsibility."
Bank of New Zealand was criticised for offering pre-approved credit cards en masse to non-customers, including to a large number of beneficiaries and people with poor credit ratings, immediately before Christmas 2005.
Massey University's head of banking studies, David Tripe, says there is no evidence that banks are changing their debt-pushing ways.
But their behaviour can be somewhat changeable, aggressively pushing credit card spending to generate more income, and at the same time offering options to reduce credit card debt and avoid horrendous interest costs, Mr Tripe says.
The message to pay off credit card debt each month appears to be getting through.
A rise in the amount owing on the plastic that is not attracting interest is increasing, while interest-bearing balances have remained steady in the past year. "People are using their card as a convenience to a greater extent, rather than using it as a means of borrowing," Mr Tripe says.
The banks acknowledge they have a role to play in ensuring consumers do not get in over their heads with debt. They point to their support for financial literacy programmes as proof that they take customer debt management seriously.
ANZ's retail bank managing director, Wayne Besant, says the bank has a responsibility to ensure customers are aware of personal financial situation, and of their ability to repay debt.
A study in conjunction with the Retirement Commission found there was a lot of work to do to improve basic financial understanding, especially among young people.
Bank staff are encouraged to find ways that customers can repay debt faster and to sell supporting products such as insurance, Mr Besant says.
"The last thing we want to do is have our customers go into debt situations that they can't service." Mr Watts says. "It is the right thing to do, and it is good business. It is not sustainable to have your customers unable to cope or meet their financial commitments."
But Mr Tripe says the banks also have an economic imperative to lend money to generate revenue streams of interest for their shareholders.
New Zealanders actually have a remarkably small proportion of non-housing debt, with the amount racked up on credit cards and other consumer finance totalling less than $10 billion, compared with $130 billion of total household debt, he says.
"That is one of the reasons why, from the lender perspective, the whole situation is relatively low-risk, because most of the stuff is secured by some mortgage."
The average net worth of households increased $26,600 last year to $352,200. The rate of bankruptcies in New Zealand, though at an eight-year high, is much lower than in many other Western countries.
The Reserve Bank's main concern is around banks easing their minimum lending criteria, which has resulted in homebuyers borrowing up to 100 per cent of a property's value, doing away with the need for a deposit, normally about 20 per cent.
Such mortgages have previously been the domain of second-tier lenders such as finance companies, targeting borrowers who do not meet banks' lending criteria. The need to maintain and grow market share has forced banks to start competing for a slice of that business.
However, Mr Tripe says 100 per cent finance loans make up only a small portion of banks' loan portfolios.
In an attempt to dampen the housing market, Reserve Bank governor Allan Bollard raised official interest rates last month another 25 basis point to 7.5 per cent, but it is proving to be a blunt instrument.
Most mortgage lending is now on fixed-term interest rates, underpinned by cheap international funding, rather than customer deposits.
"Quite frankly it wouldn't make a lot of difference whether our interest rates were 5, 7, or 9 per cent, because the margin is so substantial that it is relatively unimportant," Mr Tripe says.
Dr Bollard summoned bank bosses to his office to discuss the issue and has threatened to curb their ability to lend if they do not heed his warnings to moderate their lending behaviour.
An option is to require banks to hold more money in reserve, which would reduce the amount available to lend out, driving up interest rates and reducing borrower demand. Banks appeared to respond by lifting two-year fixed rates which have shot up to 8.9 per cent.
Mr Tripe says it is not up to banks to cool the housing market. "Their job is to make loans on which they believe they have got a very high probability of being repaid."
Banks could not abandon all appearance of social responsibility. "But they aren't there to be charities, to be at the Reserve Bank's beck and call every minute. If people take on too much debt, the people with the problem are the banks."
At the Consumers Institute Mr Russell says that though the banks are a facilitator of debt, there also has to be a degree of personal responsibility.
"Most people would say `yippee' when an unsolicited offer for more debt arrives in the mail," he says.
Bank customers should always question whether they need the extra debt, especially if they are already struggling to pay off a credit card.
"If you are regularly getting close to your limit and only paying off the interest, then you are the perfect customer for the bank and they will incrementally offer you a little bit more and a little bit more."
There was a segment about Bollard "talking" to the Banks on last nights news, but unfortunately I missed it. I think it reinforced Bolllard's attitude to the Banks of ".. if u don't tighten money voluntarily, I will...."
Did anyone see this news segment and is this was the inference was?
The Dominion Post | Saturday, 7 April 2007
Banks are back in the gun for providing too much debt too easily to too many people, Roeland van den Bergh reports.
Titahi Bay pensioner John Watson was bemused when his bank offered to increase his credit card limit by 50 per cent. At 86, he is looking to liquidate assets, not take on more debt.
Mr Watson says he uses his National Bank Visa card a couple of times a month, never comes close to his "minuscule limit" and pays off the full balance each month, avoiding interest costs.
"They should have known that, as a low user of it, I didn't need this kind of offer.
"It upsets me when we have the problem of easy credit, and at the same time that this is going on the banks are virtually thumbing their nose at the situation," Mr Watson says.
But credit offers including mortgage top-ups for those special purchases hit "valued" customers' letter boxes thick and fast from the big banks seeking to satisfy an insatiable appetite for consumer and housing debt.
The aim for the bank is to encourage customers to spend up large, earning them revenue from high interest charges.
Bank workers, including those at Bank of New Zealand, say they have been under increasing pressure to sell debt to customers, despite taking industrial action more than a year ago in an attempt to remove the direct link between sales targets and their pay.
Their union, Finsec, is about to start a new round of wage bargaining with Westpac, and is again using the debt argument for leverage.
Staff at Westpac and Bank of New Zealand can earn more if they meet sales targets, especially for lending.
"Bank staff want to be rewarded for good service, rather than for selling ever-increasing levels of debt," bank workers union spokesman Andrew Campbell says.
Westpac call centre staff must offer a credit card or permanent overdraft application to customers who ring asking for a temporary overdraft, he says.
Call centre staff estimate that most requests for a temporary overdraft come from beneficiaries effectively looking for an advance on their next benefit payment, Mr Campbell says.
Westpac spokesman Mark Watts says outstanding overdraft balances have declined by 8 per cent in the past year. "So there is no concerted push, there is no conspiracy."
But David Russell of the Consumers Institute says there is a clear attempt by the bank to put low-income people "in hock" for the long term.
Banks are increasingly selling debt not on the request of the customer, but at the suggestion of the bank.
"There is a subtle difference," Mr Russell says. "There needs to be an understanding of the disparate bargaining strength between a bank and an individual. They need to exercise some restraint in the exercise of their power. That is a social responsibility."
Bank of New Zealand was criticised for offering pre-approved credit cards en masse to non-customers, including to a large number of beneficiaries and people with poor credit ratings, immediately before Christmas 2005.
Massey University's head of banking studies, David Tripe, says there is no evidence that banks are changing their debt-pushing ways.
But their behaviour can be somewhat changeable, aggressively pushing credit card spending to generate more income, and at the same time offering options to reduce credit card debt and avoid horrendous interest costs, Mr Tripe says.
The message to pay off credit card debt each month appears to be getting through.
A rise in the amount owing on the plastic that is not attracting interest is increasing, while interest-bearing balances have remained steady in the past year. "People are using their card as a convenience to a greater extent, rather than using it as a means of borrowing," Mr Tripe says.
The banks acknowledge they have a role to play in ensuring consumers do not get in over their heads with debt. They point to their support for financial literacy programmes as proof that they take customer debt management seriously.
ANZ's retail bank managing director, Wayne Besant, says the bank has a responsibility to ensure customers are aware of personal financial situation, and of their ability to repay debt.
A study in conjunction with the Retirement Commission found there was a lot of work to do to improve basic financial understanding, especially among young people.
Bank staff are encouraged to find ways that customers can repay debt faster and to sell supporting products such as insurance, Mr Besant says.
"The last thing we want to do is have our customers go into debt situations that they can't service." Mr Watts says. "It is the right thing to do, and it is good business. It is not sustainable to have your customers unable to cope or meet their financial commitments."
But Mr Tripe says the banks also have an economic imperative to lend money to generate revenue streams of interest for their shareholders.
New Zealanders actually have a remarkably small proportion of non-housing debt, with the amount racked up on credit cards and other consumer finance totalling less than $10 billion, compared with $130 billion of total household debt, he says.
"That is one of the reasons why, from the lender perspective, the whole situation is relatively low-risk, because most of the stuff is secured by some mortgage."
The average net worth of households increased $26,600 last year to $352,200. The rate of bankruptcies in New Zealand, though at an eight-year high, is much lower than in many other Western countries.
The Reserve Bank's main concern is around banks easing their minimum lending criteria, which has resulted in homebuyers borrowing up to 100 per cent of a property's value, doing away with the need for a deposit, normally about 20 per cent.
Such mortgages have previously been the domain of second-tier lenders such as finance companies, targeting borrowers who do not meet banks' lending criteria. The need to maintain and grow market share has forced banks to start competing for a slice of that business.
However, Mr Tripe says 100 per cent finance loans make up only a small portion of banks' loan portfolios.
In an attempt to dampen the housing market, Reserve Bank governor Allan Bollard raised official interest rates last month another 25 basis point to 7.5 per cent, but it is proving to be a blunt instrument.
Most mortgage lending is now on fixed-term interest rates, underpinned by cheap international funding, rather than customer deposits.
"Quite frankly it wouldn't make a lot of difference whether our interest rates were 5, 7, or 9 per cent, because the margin is so substantial that it is relatively unimportant," Mr Tripe says.
Dr Bollard summoned bank bosses to his office to discuss the issue and has threatened to curb their ability to lend if they do not heed his warnings to moderate their lending behaviour.
An option is to require banks to hold more money in reserve, which would reduce the amount available to lend out, driving up interest rates and reducing borrower demand. Banks appeared to respond by lifting two-year fixed rates which have shot up to 8.9 per cent.
Mr Tripe says it is not up to banks to cool the housing market. "Their job is to make loans on which they believe they have got a very high probability of being repaid."
Banks could not abandon all appearance of social responsibility. "But they aren't there to be charities, to be at the Reserve Bank's beck and call every minute. If people take on too much debt, the people with the problem are the banks."
At the Consumers Institute Mr Russell says that though the banks are a facilitator of debt, there also has to be a degree of personal responsibility.
"Most people would say `yippee' when an unsolicited offer for more debt arrives in the mail," he says.
Bank customers should always question whether they need the extra debt, especially if they are already struggling to pay off a credit card.
"If you are regularly getting close to your limit and only paying off the interest, then you are the perfect customer for the bank and they will incrementally offer you a little bit more and a little bit more."
There was a segment about Bollard "talking" to the Banks on last nights news, but unfortunately I missed it. I think it reinforced Bolllard's attitude to the Banks of ".. if u don't tighten money voluntarily, I will...."
Did anyone see this news segment and is this was the inference was?
Are you game enough to try it next weekend at his original price? 
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