Fast turn around times and reliabily win over advisers

At a Harbour Asset Management investment forum in Wellington on Wednesday, Kiwibank chief financial officer and chief operating officer Paul Chambers said that advisers now account for approaching 65% of mortgage origination in New Zealand.

While Kiwibank had initially not dealt at all with mortgage advisers, it has in recent years made concerted efforts to woo advisers.

In August, chief executive Steve Jurkovich said Kiwibank had signed up a total of 1,536 advisers, which he estimated included about 85% of advisers in the market by volume of loans generated.

Non-aligned advisers accounted for 57% of Kiwibank’s mortgage lending in the year ended June and two-thirds including the contribution of sister company New Zealand Home Loans, Jurkovich said.

Chambers said Kiwibank is winning in the adviser space now by offering them the fastest turn-around times.

Carlos Cacho, a banking analyst at Macquarie, said before his bank “took the Aussie banking system by storm” the major banks had been earning in excess of 20% return on equity (ROE) and that has since fallen to closer to 12%.

Much of that had been driven by the emergence of Macquarie and it had operated primarily through the broker channel.

Now, Commonwealth Bank of Australia is the only major bank that still originates most of its mortgages itself.

While the other banks are now trying to win back market share from brokers, that’s difficult when brokers are originating more than 70% of mortgages, Cacho said.

Price is an important factor, but what really matters most to brokers is reliability from lenders and that was the key factor to Macquarie’s rise in the market.

While the major banks’ turn-around times on mortgages went from days to weeks, Macquarie has been delivering unconditional approvals within two or three days.

Cacho cited the example of a broker who was still awaiting approval on a mortgage from a major bank when the client was just a few days away from settlement, but then was able to get approval from Macquarie in time to meet the settlement date.

While CBA and Macquarie had made major investments in systems which has allowed those banks to focus on what matters most to customers, the other major banks haven’t made such investments.

Chambers said the return on investment the big four banks are achieving in New Zealand “is one of the highest in the world … A lot of money is being made and it’s all going across the Tasman.”

The smallest of the big four banks has total assets of more than $100 billion while the largest, ANZ Bank New Zealand, has about $160 billion in assets and Kiwibank by comparison has $36 billion in assets, he said.

Kiwibank’s balance sheet has doubled in size in the last five years as it has grown home lending by between 1.5 times and two times system every single year and its business banking has grown by more than three times system.

Its market share has jumped from about 6% of mortgages to 8% while its share of business lending has gone from 2% to 4%. “We’re catching up to our natural share.”

Kiwibank’s major advantage is its origin story as a Kiwi-owned bank and its guiding motto of “Kiwi making Kiwi better off.”

Kiwibank also promises to always be available in the market whereas the big four banks can and do completely disappear from the market for periods of time, Chambers said.

Kiwibank wants to deliver a “fair” return to shareholders but isn’t aiming for the same high returns the Australian banks are currently making.

Chambers said Kiwibank often loses deals to the major banks; a big bank customer will be offered a poor deal and will turn to Kiwibank, only to have their bank return with a deal that undercuts Kiwibank’s offer.

But that still means a Kiwi gets a better deal, he said.