Banks raise cheap wholesale funds ahead of Spring mortgage surge

It could help fuel competition through the traditionally active spring mortgage market

Banks raise cheap wholesale funds ahead of Spring mortgage surge

Westpac and ASB Bank have raised wholesale funds at low interest rates – potentially fuelling competition in the spring mortgage market, according to KPMG.

KPMG’s latest quarterly survey of financial institutions found that Westpac launched a five-year medium-term note issue in July while ASB Bank launched a five-year bond in August – both seeking $100 million.

Westpac was able to sell $900 million at an interest rate of 2.22% while ASB was able to raise $600 million at 1.83%.

“Being able to lock in such low levels of funding should help fuel the competitive fires ahead of the traditionally active Spring mortgage market, with the possibility of further record-low mortgage rates being offered,” KPMG said.

Read more: All five major banks cut their mortgage rates

KPMG noted that while NZ banks are still waiting for the Reserve Bank’s decision on how much capital they should have to hold in the future, the Australian parents of the big four NZ banks are also being required to hold more capital.

“This reminds us that New Zealand banks are not the only ones to feel the heat on capital,” it said.

KPMG also touched upon Reserve Bank’s new mortgage bond standard, commending the introduction of “a high-grade residential mortgage-backed securities framework.”

“It aims to provide a deeper market for these types of securities, allowing both issuers easier access to the liquidity this provides and investors with greater access to more opportunities and greater liquidity,” KPMG explained.

"This may also result in tying up quite closely with greater levels of capital needing to back bank lending where banks may look to move more of their loans off-balance sheet through such mortgage bonds or other loan-backed securities."

Mortgages currently account for more than 50% of bank lending in the country.

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