CEO Q&A: Anthony Healy, BNZ chief executive

Anthony Healy says one of the best pieces of advice he received was to invest for the long term.

The average Auckland house is rising in value by more than $400 a day. How is that market not a bubble?

It's an affordability issue, not necessarily a bubble. More and more people are finding it difficult to get the right deposit together because with the restrictions on above 80 per cent lending now you've to have a 20 per cent deposit and that's increasingly out of the reach of ordinary, young New Zealanders. The signs that you would normally suggest a bubble, apart from price increases, would be excessive speculative buying, or that fundamentals aren't driving the market. Sadly, in a way the fundamentals are driving the market. We're really tight on supply and we've got probably five to seven years of pent up demand for housing. That's going to keep pushing house prices up. We're already starting to see a bit of moderation in house price rises. I think that's a result of more supply coming on and also a little bit of a slowdown in offshore buyers.

Many people would say banks are at least partly responsible for Auckland's heated housing market. Do you think that's a fair comment?

I think there's probably 15 or 20 different factors that feed into the issues we have with the housing market here. The most fundamental are clearly supply and demand. When you think about whether banks are contributing with the cost of home loans being too low, if you look at bank margins they've been pretty stable. What's really driven lower servicing costs for loans has primarily been the fact that cash rates have dropped and wholesale [lending] rates from offshore have dropped. Bank margins have sat for five to 10 years between 1.5 and 2 per cent. You don't see dramatic changes in margins. There's just so much liquidity around the world because central banks are printing money and you've got record low interest rates. We're always looking to deliver deals that are attractive to customers, but I think that is a very small factor when you add up all the other much more fundamental factors that are affecting the housing market here.

How well prepared is BNZ to deal with a sudden downturn in the housing market?

Our core tier one capital is above 10 per cent, which is very strong by international standards, so we're well capitalised to absorb losses. I think we're well provisioned. We have the lowest level of above 80 per cent lending for residential housing in the market. And all banks are seeing their amount of above 80 per cent lending declining over time. When we assess someone's ability to take a loan with us, we stress test their ability to service higher interest rates. So I think from a servicing perspective we're well prepared as well.

How will traditional banks survive the new technology arriving on the scene such as peer-to-peer lending platforms?

Disruption is certainly more prevalent today than it's ever been. I think the banks that will continue to survive and thrive in the face of disruption will be those that meet customers' needs. Take peer-to-peer lending. What that's really delivering is faster decisions and a more seamless engagement between investors [lenders] and borrowers. For us, that's why we keep investing in our credit decision engine, so we can deliver faster and better decisions for our customers. It's also why we keep investing in our digital platforms because customers' benchmark today for a great experience is dictated by Amazon or Google or Apple. There will be times when we will be able to build that capability ourselves and there will be other times when we will see disruption coming and we might choose to partner with that disrupter rather than defend against it.

You discussed global warming at the Australia-New Zealand Climate Change & Business Conference yesterday. Why should a bank care about climate change?

We're a large organisation that's been around for 150 years and we're very much part of the fabric of New Zealand society. Climate change is an issue that really matters for the communities and customers we serve. I don't claim to have all the answers, but it's certainly an important topic for us to be thinking about at the bank, partly because we fuel growth in the economy and that growth has to be sustainable. For me, sustainability is not just about economic sustainability but social and environmental. And then if you think about the asset classes that we lend to, such as residential homes, tourism businesses and agriculture - all of which can be affected by climate change - it's really important that we engage on the topic.

What's the best piece of personal financial advice you've received?

There's probably two. The first one is always invest for the long-term. I tend to invest in shares and plan to hold them until retirement. You don't want to be trading in and out because prices are high or low. The second one, which is a Warren Buffett piece of advice, is never invest in anything you don't understand the business model of. He will invest in Coca Cola, or a services company, because he understands how that works.