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SBS Bank's 3.99 per cent home loan offer grabbed headlines, but the lending minnow is facing a profit hit as a result of the market-leading rate, its boss says. Invercargill-based SBS, which is owned by its customers, announced the special one-year fixed rate last month as it moved to refresh its brand, part of a push into Auckland and other parts of the country outside its Southland home base. Chief executive Wayne Evans said the rate was one way of generating some noise in a crowded market. "To make the 3.99 [per cent rate] viable for us we actually had to lower our profit expectations during this period," said Evans. The rate is available for a limited time for new lending over $100,000 for residential, owner-occupied properties with minimum equity of 20 per cent. READ MORE:Could this be the end of ultra low fixed rate mortgages?Fed rates hike explained: Everything you need to knowBanks drop mortgage rates after Reserve Bank cuts OCR to record low of 2.5pc Home loans rates have fallen to levels not seen for decades in this country. Evans said it remained to be seen whether they could track lower still. The Reserve Bank cut the official cash rate (OCR) back to a record low of 2.5 per cent last week and economists at Westpac and ASB have tipped it to fall as low as 2 per cent next year. "I know the Reserve Bank Governor did lower the OCR and we saw short end rates drop," Evans said. "But interestingly the yield curve steepened and that means rates 12 months and beyond either stayed static or started to climb up." It was unclear whether that signalled the bottom of the interest rate cycle.

We haven't seen the bigger banks join us - their rate cards still show them over 4 per cent. For us, we're probably right now playing our own game.
Wayne Evans, chief executive SBS Bank.
"Economists are swinging on either side of the fence, but inflation has proved stubborn in New Zealand and that's a global experience right now," he said. "If inflation continues to print below the Reserve Bank's target range then you can probably expect the OCR to lower and as a result retail rates like these to fall." The announcement of the 3.99 per cent SBS rate prompted speculation that other banks would follow suit, but Evans said that hadn't been the case. "We haven't seen the bigger banks join us - their rate cards still show them over 4 per cent," he said. "For us, we're probably right now playing our own game." Evans said New Zealand's banking sector was unique in that it was dominated small number of large banks. "I do think the banks like KiwiBank, Co-Op, ourselves and TSB have a very important role to play to keep these bigger banks honest, and provide a genuine service though pricing and product development."