Banking expert adds to Silicon Valley Bank discussion
Mortgage borrowers should not be concerned about banks demanding they repay their loan balance in full, a banking expert has confirmed.
But Fitch Ratings warns that recent events are likely to result in a short-term rise in Australian bank funding costs, and that its possible some of this increase will be passed to borrowers (including those with mortgages).
Their comments follow the highly publicised failures of Silicon Valley Bank and Signature Bank, and the bailout of Credit Suisse by rival UBS.
Industry experts previously told NZ Adviser that the domestic banking landscape was different to that of the US, indicating no concern about risk of failure. They noted that lax regulation, poor risk management and a deposit base with high exposure to the tech industry contributed to Silicon Valley Bank’s collapse.
Reserve Bank of New Zealand deputy governor Christian Hawkesby said all registered banks in New Zealand were required to have systems in place to monitor and control their material risks, including interest rate risks. As they operate different risk models, domestic banks are not exposed to the risks of recent events, he said.
Although New Zealand banks do not present the same risks as their troubled US counterparts, there are past examples of difficulty. Bank of New Zealand ran close to failure in the late 1980s, culminating in a $380m government bailout in 1990 and the sale to National Australia Bank in 1992.
In response to questions about the safety of domestic banks, Massey University banking expert David Tripe (pictured above) told NZ Adviser that although New Zealand bank mortgages were on demand, there is no history of demands being made, because banks were under funding pressure.
“Any attempt by a bank to exercise this would ruin their future business, as borrowers would no longer have confidence in arranging housing (or any other) finance with them,” Tripe said.
Tripe said that he did not expect the fallout of the two US banks to affect Australian and New Zealand banks, noting that the risk of political meddling by the government or by the Reserve Bank was likely to be greater.
Fitch Ratings senior director banks - APAC Tim Roche (pictured immediately below) said that banks are primarily funded by deposits, with the remainder sourced from wholesale markets, a portion of which are from offshore wholesale markets.
“Recent events are likely to result in higher funding costs, at least in the short-term – it is possible that some of this increase will be passed along to borrowers, including those with mortgages. Ultimately it will be a call for bank management,” Roche said.
His comments were made specifically in relation to Australian banks, but he noted that as four New Zealand banks (ANZ, BNZ, ASB and Westpac) are Australia-owned, the dynamics were similar in New Zealand.
Are bank share prices affected?
Craigs Investment Partners investment director Mark Lister told NZ Adviser on Tuesday that some bank stocks were affected by the US bank failures, but that looking across global share markets, on balance, the market had taken the US bank collapses in its stride.
"It's been the bond markets that have been impacted more...interest rates have been much more aggressive and extreme than what we've seen in sharemarkets," Lister said.
Discussing the risk of exposure to falling bank share prices, Tripe said that some New Zealand fund managers had small exposures to the failing banks in the US, which raised questions about the quality of their analysis.
“Because New Zealand banks are not listed directly (with the exception of Heartland), they should not be particularly sensitive to contagion from concerns about US regional bank share price declines,” Tripe said.
Tripe said that there had been “some easing” in Australian bank share prices which also impacted New Zealand, but the extent of the easing was “not problematic”.
In a blog posted on Friday, Milford Asset Management portfolio manager Mark Riggall (pictured immediately below) acknowledged that the US bank failures bore an “eerie resemblance” to the GFC.
Riggall said that one of the positive outcomes of the crisis was an improvement in the regulation of banks to “shore up the banking system” and boost confidence.
Acknowledging that banking regulation was complex, Riggall said the overarching message was that regulation over the last decade meant that bank capital measures had improved, as had the quality of banks’ loan books.
“Therefore, depositors should be more confident that the banking system is safe from risks stemming from a deterioration in the quality of the bank’s assets,” Riggall said.
“Banks liquidity situations are much improved and bank solvency is very unlikely to be an issue.”
