The CEO of a major lender says customers must bear the brunt of higher mortgage rates if they are to benefit from having stronger banks.
In a video interview with Bluenotes following the release of ANZ’s full-year results yesterday, ANZ chief executive Mike Smith commented on the recent rate hikes of the major banks.
On 23 October ANZ became the last of the big four banks to increase its variable mortgages rates, announcing an 18 basis point hike in an effort to offset the cost of additional capital.
Mr Smith said that it is “a balance” when deciding whether the customer or the shareholder pay for additional capital.
“It is not an easy balance to get exactly right. The issue is that when you have regulatory capital in position, somebody has to pay for it – it doesn't come for free.
“We have seen the shareholders take a lot of the pain. Since those announcements, share prices have dropped by 20 per cent. They have taken a fair amount of that pain. So it is appropriate that customers have to take some of that pain as well in terms of the benefits of having stronger banks.”
Mr Smith said that, at the end of the day, banks are a “leverage play” and will therefore be “inherently higher risk”.
The outgoing CEO’s comments come as ANZ posted a record cash profit for the 2015 financial year, up by 1 per cent to $7.2 billion.
ANZ bolstered its mortgage market share over the 2015 financial year, growing its home loan book by 10 per cent to $231 billion. National home loan sales are up 23 per cent on the previous financial year.
In NSW, where ANZ has typically been underweight, home lending grew by 20 per cent over the year. Home loan sales in NSW grew by 63 per cent.
“In Australia we are successfully investing in growth opportunities in NSW, while across Australia and New Zealand we are continuing to grow market share in mortgages and small business,” Mr Smith said.
ANZ saw a slight increase in interest-only mortgages, which now account for 37 per cent of the group’s home loan book, up from 34 per cent at the end of the previous financial year.
Broker-originated mortgages increased marginally from 47 per cent to 48 per cent. Half of all ANZ’s mortgage flows are now originated by the third-party channel.
ANZ raised a total of $4.4 billion of new equity throughout the past year, including $3.2 billion in response to APRA’s increased capital requirement for Australian residential mortgages, which applies from July 2016.