KEY POINTS:
New Zealand's largest bank, ANZ National, says international turmoil and the rising cost of increasingly scarce international funding has not yet forced it to begin rationing credit to homebuyers and businesses.
Chief executive Graham Hodges rubbished suggestions banks would force homebuyers to repay significant chunks of their mortgages
to meet loan to value ratio should the credit crisis seriously erode house prices.
ANZ National and the other major New Zealand banks source just over a third of their funding overseas, often in the same markets that recently locked up because of credit turmoil.
Earlier this year, before the credit crisis reached its current and most critical state yet, ratings agency Moody's and the Reserve Bank of New Zealand warned the relatively short maturity profile of much of this funding could present problems as banks were forced to refinance large amounts amid adverse conditions.
Yesterday Hodges pointed out his bank raised $3 billion for a five-year term back in July at rates which were then regarded as high, but which were now looking favourable.
"We were mindful that there would be times the market would be uncertain and choppy."
Massey University head of banking studies David Tripe said the relatively short maturity profile of banks' overseas funding "really does pose some challenges for liquidity management".
However, the Reserve Bank has made liquidity management a top priority in recent months, putting in a number of measures to ensure banks can access sufficient funding when they need it. Those measures include widening the range of assets it will accept from the banks as security on lending.
If banks' liquidity is constrained they are likely to be more reluctant to lend to households and businesses.
While there has been some anecdotal evidence of "credit rationing" to businesses, Hodges denied ANZ National was doing this. It continued to lend on the same types of proposals it would have before the credit crunch.
Hodges also dismissed reports this week that banks might may demand people with sizeable home loans repay some of their debt or sell their house as the global credit crisis worsened.
"That's overly alarmist nonsense. Customers will only have to make different arrangements with the bank if they're unable to meet mortgage commitments," he said.
"'We all understand the market will go up, down, and back up again. Negative equity doesn't mean homeowners will want to sell or that the bank will want to take action. I would expect that to be the case for all the banks."
Hodges said ANZ National and the wider New Zealand banking system "remain remain lucky in terms of where we sit in the world right now".
"While we are obviously very watchful, I go back to what the Reserve Bank Governor is saying, that New Zealand is still well positioned."
Reserve Bank governor Alan Bollard this week reassured markets: "The banking system is sound in New Zealand, and we do not expect this to alter."
New Zealand has a "vanilla" banking system with virtually no exposure to the types of credit instruments behind the credit crisis.
While funding is harder to raise on international markets at present, Massey University's Tripe pointed out that with their AA rating, New Zealand's banks were regarded as among the safest in the world.
However, the rising cost of funding is expected to keep mortgage and business lending rates here high no matter how aggressively the Reserve Bank cuts the official cash rate.
Hodges warned the Wall St bailout package being considered by US politicians was not a panacea for the crisis and "there will be further periods of choppiness".
BOLLARD ASSERTS CONFIDENCE IN BANKS' STABILITY
New Zealand's banks continue to operate strongly amid the turmoil in global financial markets, Reserve Bank governor Alan Bollard says.
The nation's banks "are well capitalised businesses and give no current reason for concern", he said yesterday. The Reserve Bank regulates the banks and a law passed last month make it also responsible for non-bank lenders.
About $5 billion held by finance companies has been frozen as tighter credit conditions and a slump in the property market led to company collapses.
The new law "provides a strong basis for confidence in the non-bank sector," Bollard said. The failures highlighted fragile business structure, poor risk management and inadequate governance that new rules would help to address, he added.
The bank's role would be to enforce minimum prudential and governance requirements and to administer credit-rating requirements of non-bank lenders taking deposits from private investors.
- BLOOMBERG