No rush to match Kiwibank expected

Don’t hold your breath for a rush by other mortgage lenders to match Kiwibank’s plans to charge 6.1% for both floating and one-year fixed home loans.

Thursday, February 7th 2002, 6:45PM

by Jenny Ruth

Its floating rate will certainly be the lowest in the market. The big five banks, which still account for the majority of mortgage lending, are currently charging 6.7%. But there is also a great range of lenders offering lower rates, the lowest being Wizard at 6.24%.

Its one-year fixed rate won’t be the cheapest in the market. It will certainly beat the big five banks whose one-year rates range from WestpacTrust’s 6.25% to National Bank and ASB Bank’s 6.5%.

But TSB Bank, which arguably has as much claim to be a "people’s bank" as Kiwibank, is currently offering 5.9% one-year rate.

David Tripe, of Massey University’s centre for banking studies, suggests Kiwibank will need something other than cheap prices to attract customers.

"If price is everything, why isn’t HongKong Bank doing a lot better. It consistently undercuts the banks but it struggles to get any presence," Tripe says. HKSB is currently offering a 6.3% floating rate and a 5.95% one-year fixed rate.

National Bank’s chief retail lending manager John Park says his view is the best thing to do is what and see what impact Kiwibank actually has.

It is planning to open three branches in Palmerston North on 12 February and four in Hawke's Bay on 13 February in a program set to run for six weeks before the bank opens nationwide in April and May.

Kiwibank, which is also claiming its customers will pay an average 50% less in fees, is expecting to have close to 300 branches operating by mid-year which would give it more outlets than any other bank.

Some banks, notably WestpacTrust, have already announced cuts in fees, but Tripe says the $1 million loss in revenue the cuts will produce is insignificant.

National Bank won’t be rushing to change its current mortgage rates. "If you choose to make selective comparisons, anyone can make themselves look very good or not so good," Park says.

"There are lots and lots of different packages in the mortgage market. Often it’s not just the home loan on its own" that wins particular customers, he says.

"Competition is there anyway. The question you’ve got to ask is will one more or one less make a material difference," Park says. He notes that none of the big five lenders try to match the cheapest offers in the market and that only about 40% of mortgage lending these days is done at floating rates.

James Lockie of mortgage bankers Cairns Lockie, which sources its funds from Australian wholesalers, says that service and product diversity can be just as important as pricing to customers.

He suggests Kiwibank may have a problem on the service side. "People won’t know what Kiwibank can do" on the infrastructure side.

Lockie also wonders why Kiwibank feels the need to undercut the major banks to such an extent. "They probably don’t have to to get the business they want. They’re presuming the market’s very price sensitive."

Cairns Lockie won’t be changing its current 6.4% floating and 6.3% one-year fixed rate in a hurry. Lockie says his firm is already losing money on the one-year rate and doesn’t fancy losing more.

TSB Bank managing director Kevin Rimmington says Kiwibank won’t be undercutting his bank on fees because it doesn’t charge any. He estimates that a customer doing 75 transactions a quarter with Kiwibank will be paying $100 a year in fees.

He also says the interest rate charged isn’t the only factor in winning business. "We won’t necessarily try to match them. We do monitor all banks. Kiwibank will be just one more to monitor," Rimmington says.

TSB Bank has been offering mortgage nationwide for about three-and-a-half years. Rimmington says the 5.9% one-year loan still makes a profit, although a slim one, for his bank and that it’s not in the business of running loss leaders.

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ASB takes selective approach to Kiwibank »

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