Proposed Reserve Bank changes will push up mortgage interest

The Reserve Bank has proposed significant increases in the amount of capital that banks are required to hold for 8.5% to 16%.

This would push up  mortgage interest rates, the Reserve Bank thinks by 20 and 40 basis points, but banks say it will be more like 100.

Newsroom: RBNZ proposals ‘will add $6000 a year to mortgage’

Westpac says the Reserve Bank’s bank capital proposals will mean homeowners with an average mortgage in Auckland will be paying about $6,000 a year more in interest.

The Australian-owned bank says the central bank has greatly underestimated the cost of its proposal to near double minimum tier 1 capital from 8.5 percent currently to 16 percent for the big four banks and 15 percent for the smaller banks.

The RBNZ has said its proposals would add between 20 and 40 basis points to the cost of a home loan and that amount would be lost in “noise” around interest rate changes but Westpac says the cost will be more than 100 basis points in its submission on the proposals.

Westpac says RBNZ hasn’t provided “quantitative justification” for the proposals which “go well beyond international norms.”

It criticises the central bank’s failure to produce a cost-benefit analysis, a criticism already levied by many commentators who, like Westpac, have said that should have been the RBNZ’s starting point.

Westpac says the absence of that analysis means “it is unclear that the economic costs of implementing the proposals are justified.” It estimates one of the costs will be to shave 1.3 percentage points off New Zealand’s annual GDP.

GDP in the year ended March was 2.8 percent so, if Westpac is right, the bank capital proposals would reduce that to 1.5 percent.

Westpac’s submission is littered with savage criticism of the analysis RBNZ has done. For example, the consultation paper released in December “does not adequately consider” the adequacy of existing bank capital levels.

RBNZ has said New Zealand banks on average carry about 12 percent tier 1 capital, significantly above the current 8.5 percent minimum.

Westpac says the proposals “are not justified by any supporting data or evidence,” RBNZ’s analysis is “materially incomplete and flawed”, and that the central bank has selectively used academic research to back its proposals while ignoring research that doesn’t support them.

The outcome of this argument could be a big deal – or cost – for people with mortgages.

 

NZ banks’ terms & conditions for handing customer data to the police

Nicky Hager’s lawyer Felix Geiringer  asks: What do New Zealand’s leading banks say in their terms and conditions about handing their customers’ data to Police and other Govt agencies?

They say they will hand over customer to data in breach of Privacy Act. Westpac have apologised to Hager and have promised to change their terms

But the other major banks have made vague assertions that they will not breach customer privacy but still have dodgy terms, and have not made a commitment to change their terms to comply with the law.

Regardless of views about Hager’s use of hacked data, this is an important issue for everyone.

Via Twitter @BarristerNZ:

There has been significant publicity over Westpac’s decision to hand Nicky Hager’s data to Police. But this issue was never limited to Westpac.

A study conducted by the OPC in 2015 suggested that our financial institutions might have been releasing to Govt the data of close to 10,000 customers per annum without a warrant / production order.

Possibly close to 10,000 customers each year! And this appears to have been happening for over a decade.

Plus, all our banks, not just Westpac, had entered into a written agreement with NZ Police to give over customers data without warrants or productions orders.

Basically, all our banks promised Police that they would breach the Privacy Act if Police asked them to. And it looks like Police may have made many thousands of such requests.

Westpac said to Hager that its terms permitted the release. The OPC rejected the argument that those terms could be relied upon. However, Westpac terms, on their face, did set a much lower bar for releasing data than our Privacy or Search and Surveillance legislation.

Westpac have apologised for its breach, and it has also promised to change its terms. There will now be an enforceable contractual promise from that bank to customers that it will not do this again.

What about other banks?

I am told that in answer to journalists’ questions some other banks have made vague assertions that they will not breach customer privacy. But what do their terms actually say?

Kiwibank’s terms are very similar to the ones Westpac had at the time of the Hager release.

Kiwibank’s terms assert that, by banking with it, you authorise it to release your data to Police whenever Kiwibank thinks it will help Police with an investigation.

That test bypasses the protections that parliament has put in place which limit releases to circumstances where Police can objectively establish reasonable grounds to believe the data is evidence of a crime.

ANZ’s terms are almost the same again, arguably even looser. It says that by banking with it you agree that it can give your data to Police if it believes that doing so will help prevent crime.

ASB’s terms are more open to interpretation. It can release data to Police when required to by law. There can be no objection to that. But it can also release data in a variety of other circumstances.

ASB’s terms define the purposes for which it is holding your data to include to “investigate illegal activity”. The terms allow release to 3rd parties for this purpose. However, the Govt isn’t expressly listed as one of those 3rd parties.

If the list of 3rd parties in ASB’s terms is read as a closed list, it arguably has the best terms. If it is not read as a closed list, then it has one of the worst terms.

BNZ’s terms are clear, and are clearly the worst of those discussed here. Its terms claim that you have authorised it to share your data with Police or other Govt agencies for the purpose of detecting any crime.

The circumstances of release permitted by BNZ’s terms are astoundingly broad. Those terms have little regard for the duty to protect the secrecy of BNZ’s customers’ information.

I haven”t analysed TSB’s terms.

So, there you have it, and I think that this raises serious questions. We know the NZ banks were doing a very bad job of protecting our private data. They say they are doing better now, but are they?

And, if these banks are now not handing over data to Police without a warrant or production order, why is this still not reflected in their terms?

Principle 11, Privacy Act 1993 – 6 Information privacy principles: Limits on disclosure of personal information

 

Westpac apologises and settles with Nicky Hager over privacy breach

Westpac have apologised to Nicky Hager and agree to pay costs and compensation, settling a complaint by Nicky Hager when Westpac illegally provided the police with banking data when investigating the hack of Cameron Slater (breaching his privacy) that contributed to the book Dirty Politics.

Hager’s lawyer Felix Geiringer:

Nicky Hager has settled his privacy dispute with Westpac with the Bank agreeing to change its terms. Full media statement below.

NZ Herald details Westpac’s apology in Westpac admits breaching Nicky Hager’s privacy by giving records to police

Westpac said in a statement its new policy now required a production order from authorities before releasing private information, except in “extremely limited circumstances” such as Police searches for missing persons.

“We apologise to Hager for our part in the distress these events have caused him and his family”.

“Westpac’s practice at that time was to comply with such requests in the belief that it was entitled to do so under the Privacy Act. However, in the light of the public discussion of Hager’s and other cases, it is clear that bank customers reasonably expect that in similar circumstances such data will be kept private.”

While this is a victory for Hager it is also a win for privacy in general and proper police investigation processes.

The police have already apologised and settled:  Police apologise to Nicky Hager

In a settlement with far-reaching implications, the New Zealand Police have apologised to Nicky Hager for multiple breaches of his rights arising from their 2014 investigation into Dirty Politics.

Nicky Hager’s home was raided by Police in October 2014. The raid was part of an investigation into the source of Nicky Hager’s book, Dirty Politics. In 2015, the High Court ruled that the warrant that was used for the raid was “fundamentally unlawful”. However, many more alleged breaches of Mr Hager’s rights were left to be resolved at a later hearing.

In today’s settlement, Police have accepted that they did not have reasonable grounds for the search, that they attempted to breach Mr Hager’s journalistic privilege in multiple ways, and that they unlawfully obtained his private information from third parties including his bank. [The full Police statement is included below.]

“This is a very important agreement,” said Mr Hager. “The Police have admitted that many things they did in their investigation and search were unlawful. This sends a vital message that people can share important information with journalists with confidence that their identities will be protected. The Police have apologised for threatening that confidentiality and trust.”

As part of the settlement Mr Hager is to receive substantial damages and a substantial contribution to his legal costs. Mr Hager said “Under the agreement, I am not allowed to name the figure. However, it gives the strongest possible indication that Police accept the harm they caused and are much less likely to treat a journalist this way again. The money will help support important work in years to coming.”

During a 10-hour search of his home in 2014, Mr Hager claimed journalistic source protection privilege. He later learned that Police officers breached express promises made during the search and photographed privileged documents to use in their investigation. Police also sought to circumvent Mr Hager’s rights to source protection by obtaining his private information from third parties such as Air New Zealand, Qantas, PayPal, Customs, WestPac, Vodafone, and Two Degrees. Luckily, none of this succeeded in exposing any sources.

“This has been a long fight, but we stuck at it because we believe what we were fighting for was important,” Mr Hager said. “I want to thank my legal team and all of the people around New Zealand who have cared about the case and supported it over the last three and a half years”.

There are other questions raised in this about the speed and degree police investigated Hager after a complaint by Slater, compared to how the police have dealt with complaints made against Slater, for example the soliciting of a hack of The Standard, which Slater admitted in being offered (by police) and getting diversion despite having had diversion previously.

 

Ardern: “Working together to build a new economy”

The big news from Jacinda Ardern’s Westpac speech on business confidence this morning to is Ardern announces Prime Minister’s Business Advisory Council, but there are other things of interest in her speech.

Working together to build a new economy

In fact it wasn’t too long ago that I stood amongst you and spoke about our economic agenda.

I also spoke about the issue of business confidence. I called it the elephant in the room. Well I am here this morning to tell you that I have changed my mind.

Not on our economic agenda – I remain more convinced than ever that it is required, but on the issue of business confidence.

It is not the elephant in the room, it’s a flashing great neon sign with giant lights and fireworks going off behind it. We are all talking about it, and there is nothing wrong with that.

That is why this speech was the first thing I announced the day I returned to work.

Because we have an economic agenda which responds to so many of the issues that have been raised time and time again, and because if there are concerns, or issues, both within our control and outside of our control – then lets tackle them head on, and lets do that together.

The business confidence paradox

When you line up business confidence with key economic performance measures over the last two governments there appears to be an inverse relationship between business confidence and the actual performance of the economy.

For instance, average business confidence scores under the Clark/Cullen Government were much lower than the Key/English Government, despite Clark and Cullen delivering higher average growth, lower unemployment, lower debt, larger surpluses and stronger wage growth than their successors.

We appear to have inherited a similar conundrum, we’ve run a strong surplus, have the best net international investment position ever recorded, stable and low interest rates forecast for some time which ought to spur investment and the lowest unemployment rate in a decade.

That then begs the question, if it’s not the overall economic indicators that is driving these figures, then what is? I have discussed this question with both business leaders and representatives, colleagues and officials. The answers I have had back are almost as diverse as the groups I have asked.

Certainty

As I travel around the country, the issue of certainty is an underlying theme. Whether you are a social service, a health organisation, or a business, knowing what a new government has planned is critical to your eco system. I utterly understand that. In fact, I have considerable empathy for that desire too.

As a politician with quite a diverse government and the scrutiny of a three yearly very public performance appraisal, I will take certainty when I can get it.

From a business perspective, I understand the desire for certainty in order to make decisions big and small, ranging from the risk of taking on an extra hire through to multi-million dollar investment decisions, and you need to understand that the climate you operate in today will be broadly the same tomorrow.

But certainty shouldn’t be confused for stasis and complacency, which are the enemy of progress, and for that matter the enemy of innovation.

The reality is that our economy faces a number of challenges, global in their nature, that by working together we must confront to protect our long term prosperity.

Skills shortages, lack of investment in the productive economy, a shallow national pool of capital, an infrastructure deficit, low productivity, building sustainable business practices in the wake of environmental degradation, and the challenges of what can broadly be called the future of work.

The jarring way in which we came out from under the cloak of protectionism in the early 80s saw over a hundred thousand workers lose their jobs and the genesis of many of the social challenges we are now working to fix decades later. This must not be repeated.

And for that, we need a plan.

It is time to retool our economy to make it work within the limits of our environment, shape it to deliver on the hopes and aspirations of all our people, and for our economic purpose to be bigger than just profit.

From reform of the Reserve Bank where we are including maximum sustainable employment as an objective, to getting active in the housing market, building modern transport infrastructure and setting ambitious emission reduction targets – we are renovating the existing legislative and policy architecture to bring it up to the new code our economy needs.

Government decision making

We are an MMP government at its best and our structure ensures that on every decision a range of views are heard. The outcome reflects the breadth of input and leads to better decisions.

Hardly a model for fast and unexpected change – in fact all change is negotiated, but a model that I believe serves us well.

Business Partnership Agenda

Today we are launching a publication that outlines this agenda and brings together the strands of this Government’s economic strategy.

Our overall objective is to build a productive, sustainable and inclusive economy.

On each score we have some way to go. When it comes to productivity, the OECD has said we are “well below leading OECD countries, restraining living standards and well-being”.

We need to transition from growth dominated by population increase and housing speculation, to build an economy, that as I said, is genuinely productive, sustainable and inclusive.

That’s the why. Now what about the how. For that, I want to share with you the top lines of our economic strategy so everyone is clear about our key priorities that you can engage with us, but also so you can hold us to account against some key measurables.

First we want to grow and share more fairly New Zealand’s prosperity.

That means the gap between the highest and lowest income and wealth deciles reduces, real per capita income increases; the value and diversity of our exports grows and home ownership increases.

Second we want to support thriving and sustainable regions that benefit from an equitable share of sustainable economic growth. We want to see key regions show improvement in employment and income distribution figures and the number of businesses in key regions growing.

Third we want to deliver responsible governance with a broader measure of success. The Finance Minister is already working on the Government’s measures of success to ensure they better reflect New Zealanders’ lives.

Next year we will be the first country in the world to deliver a Wellbeing Budget. This process is underway and will see an overhaul of how the Budget is written and the objectives that it sets.

Finally this Government is committed to transitioning to a clean, green carbon neutral New Zealand. We plan to put New Zealand on a clear path to a net-zero emission future and a healthy environment.

My message to you all is this – now is the time to be involved and help shape this work for a better economy.

Industrial relations and immigration settings

In amongst this new agenda is also the work that we are undertaking on industrial relations and immigration settings – two areas that do come up from time to time.

I understand the tension that addressing these issues can bring. The reality of making payroll, investing back into the business for future growth and keeping the lights on.

The underlying fundamentals of our industrial laws are working well, but we do need to address some of the imbalances that have been generated over recent years.

A lot of waffle on this.

Then Ardern announces Prime Minister’s Business Advisory Council.

Conclusion

I am confident that by working together we can overcome the challenges facing our economy and society.

We will not be an idle Government, and I won’t be an idle Prime Minister.

We are promoting change because without change our businesses and our economy are at risk. But change does not need to breed uncertainty, not when instead it can breed opportunity.

I have confidence that our relationship will thrive, that our agenda will successfully tackle the challenges we face, and that our shared achievements for the country will leave a lasting legacy future generations will thank us for.

Now let’s get on with it.

Apart from announcing the Business Advisory Council there doesn’t seem to be much new here, it is largely a promotion of the Government agenda – she used the work agenda 12 times – and trying to promote confidence in the changes they want to make to “successfully tackle the challenges we face”.

I don’t know what business people will take from her speech. There doesn’t seem to be much in specifics.

Full speech notes at Scoop.

Immediate action on climate change could save $billions

Both the environment and business could benefit in New Zealand if early action is taken on climate change.

NZH: To act now or later: the $30 billion climate change question

Immediate action on climate could save New Zealand tens of billions of dollars, according to a Westpac report.

Based on research conducted by EY and Vivid Economics, the report shows the New Zealand economy could benefit by $30 billion by 2050 if government and business take early action on climate change.

It also shows that New Zealand could simultaneously reduce carbon emissions and achieve economic growth.

The report models two scenarios, one that involves an earlier and smoother transition to a lower carbon economy, while the other hypothesises a decade-long delay in action followed by a shock event that forces the nation to act.

The report makes a business case for acting immediately.

Westpac NZ chief executive David McLean said the report shows the need to take immediate steps to reduce greenhouse gas emissions.

“The alternative is waiting and taking action later, but that is likely to require more drastic changes in behaviour and over the long-term hit people harder in the pocket,” he said.

“The average gross domestic product growth is forecast to be 2.015 per cent per year until 2050 if industries take early action on addressing climate change. If substantive action is delayed and companies have to play catch-up later, this falls to an average of 2.005 per cent. The cumulative difference is $30 billion.”

While the report shows that action on climate change will result in a reduction of the economic contribution of some industries – including forestry and fishing, dairy meat and other food products and non-renewable energy generation – these will be countered by significant gains in renewable energy generation.

Inaction is unlikely to insulate food production businesses from the market changes due to climate change mitigation.

This trend is already being reflected in the financing decisions being made by Westpac.

“Our lending to green businesses that are helping to provide solutions to climate change stands at $1.5 billion. We’ve set a new target to lift that to $2 billion by 2020,” said McLean.

Since 2012, Westpac has also reduced lending to companies involved in fossil fuel extraction and production by 55 per cent to $318 million.

McLean said Westpac commissioned the report to get better insight into the risks facing the bank from climate change.

“We believe businesses need to be thinking about and planning for climate change now, not only from a risk perspective but also for the growth opportunities it presents to many parts of the economy,” he said.

“Smart companies should start focusing on those opportunities as part of their business strategy.”

Businesses planning for their futures need to be considering the possible effects of climate change, and the certain effects of market changes.

Hager takes Westpac to Human Rights Review Tribunal

Recently the Privacy Commissioner upheld Nicky Hager’s complaint against Westpac for breaching his privacy – see Privacy Commissioner upholds Hager complaint against Westpac.

That is only advisory (toothless) so Hager has now filed a case against Westpac with the Human Rights Review Tribunal.


Nicky Hager files proceedings in the Human Rights Review Tribunal

Nicky Hager has filed a case against Westpac with the Human Rights Review Tribunal. This is yet another step in Mr Hager’s response to the unlawful search of his home and private information by Police.

The Privacy Commissioner recently upheld Mr Hager’s complaint against Westpac for breaching his privacy. However, the Privacy Commissioner’s decision is advisory only. To obtain binding orders, Mr Hager needs to take his case to the Human Rights Review Tribunal.

Mr Hager believes the attitude of Westpac has left him with no choice but to continue with his case. “He has asked Westpac to acknowledge that it breached his rights.

Despite the Privacy Commissioner’s ruling, it has not been prepared to do that,” Mr Hager’s lawyer Felix Geiringer said.

Mr Hager will be asking the Human Rights Review Tribunal for binding orders requiring that Westpac not give its customers’ bank transaction data to the Police without a production order.

There may be thousands of people in the same position as Mr Hager, but who do not know it. “He has also asked the Human Rights Review Tribunal for an order requiring Westpac to notify everyone whose privacy may have already been breached,” Mr Geiringer said.

Even if Mr Hager is successful before the Human Rights Review Tribunal, the broader issue may remain. “This issue does not just relate to Westpac. All New Zealand’s banks had the same arrangement with the Police. Many other companies have also been releasing personal information without asking for a production order.”

A claim against the Police for making the requests is still before the High Court.

Privacy Commissioner upholds Hager complaint against Westpac

Felix Geiringer (Nicky Hager’s lawyer):

Westpac “believes that every customer has authorised the disclosure of all of their information… to Police for whatever reason Police give it seems untenable that Westpac would genuinely hold this belief… it would come as a surprise to a great many of Westpac’s customers…”

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And:

The Privacy Commissioner’s decision:  Privacy Act Complaint: Nicky Hager and Westpac New Zealand (Our Ref: C/28047) 

Bank closures – who uses them?

Westpac has just confirmed they are closing 19 rural and small branch banks.

This is bad news for people who still rely on physical banks, and especially for towns who will be left with no banks, like Ranfurly which is an hour’s drive from the next nearest banks.

But keeping the number of branches open must be a challenge for banks.

Who actually goes to a bank these days? Some businesses like shops must still deal with some cash, so it will be a nuisance for them.

But I can’t remember how many years ago I last visited a bank, apart from withdrawing cash from an ATM, and even that isn’t often these days.

How we use money and banks has changed dramatically over the past half century.

It reminds me of something that happened to me a bit less than half a century ago. I had a job that involved servicing teller machines. I arrived in a small rural town late morning to service their machine, but discovered that they closed for lunch.

We worked out a solution – they locked me inside the bank while they went for lunch and I finished my work uninterrupted until they returned and let me out.

My brother used to work for a bank. He moved to Dunedin with that job, and was rostered to work at the Port Chalmers Branch that was only open for a few hours a day or two a week. He travelled between branches by bus carrying the money in a suitcase. Passengers knew he was the bank guy and would joke about mugging him but things were a lot different back then.

Housing supply versus demand

A summary of how we have arrived at the current housing situation from Dene Mackenzie at the ODT:

Supply, demand key factors

Dwelling consents, bank lending and net migration were three of the main factors determining house prices, Milford portfolio manager Brian Gaynor said yesterday.

Supply in the form of dwelling consents, dropped off sharply in 2009 in response to the global financial crisis and the collapse of New Zealand’s finance company sector. The latter was a major supplier of credit for house builders and property developers, he said.

In the four years to 2012, an average of only 14,850 consents a year were issued compared with an average of 26,218 consents in the four years to 2008.

“Consents have picked up dramatically and it will not be long before the annual consents number exceeds 30,000.”

Annual consents in excess of 30,000 had only been achieved five times since records began in 1966. The record high was 39,636 consents in 1974, Mr Gaynor said.

The huge increase in net migration, to 68,432 for the May 2016 year, had a major impact on demand. It represented a net turnaround of 72,085 since the net outflow of 3653 in the May 2012 year.

However, the massive increase in lending to home purchases had also fuelled the housing markets.

There much talk about loan-to-value limits but the lending statistics illustrated the regulation had not been effective, he said.

“The gap between the value of new loans and the value of new dwelling consents has widened dramatically in the past year.”

The housing market took off a few years ago because of the very low build rate after the collapse of the finance company sector, Mr Gaynor said.

Actions by banks could slow down demand. Non resident (overseas) borrowers:

Westpac was one of several banks which stopped lending to non-resident borrowers with overseas income last month, and Bankers Association chief Karen Scott-Howman said lenders were responding to signals in the market and from the Reserve Bank.

And yesterday a cutback on the term allowed for interest-only loans:

Westpac’s New Zealand unit is cutting interest-only lending terms to a maximum of five years, in a market where investors are the driving force.

Interest-only loans were often used by property investors who met the interest repayments and left the principal untouched on the expectation they could pocket a capital gain on a house sale.

Reserve Bank figures showed interest-only mortgages accounted for about 41% of all new lending in May, up from 38% in January when it first started collecting the data. Of existing home loans, interest-only mortgages totalled $60.82billion as at March 31, or 28% of total loans.

A dramatic effect could be coming:

Supply was now increasing and any reduction in immigration and/or banking lending was likely to have a dramatic impact on house prices. Housing bulls should keep a close eye on the rising supply figures, he said.

The pushes to increase supply should eventually work, and with limits put on investors in the market supply may switch from lagging to exceeding demand.

It’s anyone’s guess whether the market will flatten or fall.

Cash rate stays, foreign buyers go

Yesterday the Governor or the Reserve Bank, Graeme Wheeler, announced there would be no change to the record low cash rate of 2.25% and also warned that property investors could soon be targeted with new Loan to Value ration rules.

Wheeler said that rising house prices as a risk to the country’s financial stability.

Later in the day, possibly in part at least in response, the Westpac and ANZ banks said they would no longer lend to overseas buyers of New Zealand properties due to financial risks.

This follows similar moves recently in Australia. Other banks are expected to do likewise.

This is expected and hoped to have some impact on escalating property prices.

NZ Herald: Westpac, ANZ Bank shut out foreign buyers

Westpac New Zealand has announced that from today it will no longer lend to non-resident borrowers with overseas income.

Borrowers on temporary resident visas will only be accepted if they have both a New Zealand address and a New Zealand-based income.

ANZ has also announced restrictions that will effectively shut out most non-resident, overseas-based borrowers, including restricting lending to owner-occupied properties.

The restrictions will not affect New Zealand passport holders living abroad and purchasing property funded by overseas income.

A Westpac spokeswoman said the restrictions “reduces risk”.

“Verification of foreign applications is essential to meeting our lending criteria and obligations, but is operationally difficult in these cases.”

An ANZ spokesman said the changes were made to ensure the bank was “appropriately positioned in the current housing environment, taking into account supply pressure in certain areas”.

Auckland mortgage broker Bruce Patten, of mortgage brokerage Loan Market, said he expected more banks to follow Westpac and ANZ.

The majority of non-resident, overseas-based buyers would take out New Zealand bank loans for purchases here, unless they paid cash, Mr Patten said.

“Most banks around the world won’t take security in a country other than their own…it is going to cut any overseas purchases out.”

Mr Patten believed the change was partly driven by the Australian-owned banks wanting to follow developments across the Tasman – but there could also have been pressure from Government or the Reserve Bank.

“If this has an impact on slowing the house price rise down, then perhaps they might decide that they don’t need to bring [other] measures in.”

Time will tell how much effect this will have on the property market and house prices.