Borrowing becomes a whole lot harder
By ROELAND VAN DEN BERGH - The Dominion Post | Wednesday, 23 April 2008

Home buyers wanting to borrow will face a much tougher time as big banks put the brakes on lending, especially on investment property.

Banks are reducing their lending as the global credit crisis hits home, KPMG says in its latest industry report.

"The global credit crunch, slowing asset growth and a slow but steady increase in doubtful debts all point to the fact that the tide has turned," KPMG deputy chairman of banking Godfrey Boyce said.

Liquidity pressure and funding constraints has resulted in banks reducing lending in the past three months.

The days of being able to walk off the street for a loan had ended, Mr Boyce said.

Lending policies were being strictly enforced and staff given little, if any, discretion to vary terms and conditions.

The rapid slowdown in the housing market, especially last month, had also led to fewer mortgages being written, particularly in the investment property market.

"There is a clear focus on retaining existing customers, with less appetite for lending to new customers," Mr Boyce said.

There would be an impact on the economy because finance would not be as readily available, he said.

The credit crunch had made it hard for banks to obtain medium- to long-term funding overseas, and it had also become much more expensive, Mr Boyce said.

The big banks had more than 30 per cent of their balance sheets funded from overseas.

To offset some of those costs banks were wooing retail investors through attractive interest rates on term deposits and other investment offers.

"This is likely to contribute to keeping interest rates at or closer to their current levels for some time."

If domestic economic conditions worsened and there was no improvement in banks' ability to borrow overseas, banks would be constrained in their ability to lend, leading to credit rationing.

"Such a scenario would clearly be detrimental to the overall economy," Mr Boyce said.

Some banks were already reporting increases in arrears and impaired assets, though from a low base. There had not yet been a significant increase in mortgagee sales because New Zealand home owners had a history of managing their finances to meet their mortgage payments, Mr Boyce said.

However, investment properties and holiday homes were being sold to lighten the debt-servicing load.

Total loans had increased from about $127 billion 10 years ago to about $323 billion, including a $34.5 billion increase last year.

The big banks reported total profits of $3.2 billion in 2007, up 10 per cent on a year earlier on asset growth of 16.1 per cent.

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