SBS Group surplus up by 11% with first homes

Mark McLean
Mark McLean
A push into the first home buyer market has seen New Zealand’s southern-based bank increase its operating surplus by 11%.

SBS Group — which includes SBS Bank, Finance Now, FANZ and SBS Insurance — recently released its full-year results to March 31 which showed the banking group post an operating surplus of $61.3million, up from $55.2million the previous year.

The bank’s lending rose $365million to $4.4billion during the period, largely due its increase in lending to first-home buyers.

Its members’ equity increased $74million to $463million.

While it was a tough year given the uncertainties with Covid-19 and Government regulation, SBS chief executive Mark McLean said it was a "very pleasing result".

Covid-19 was not the only challenge the bank had to contend with in the past 12 months, the Government’s changes to the Credit Contracts and Consumer Finance Act (CCCFA) was very hard to navigate.

The changes were intended to crack down on loan sharks. Instead, it caused banks to closely vet mortgage applicants’ personal finances and spending habits.

In March, the Government announced amendments to the law to try to fix its unintended consequences, which will come into effect later this month.

In August last year, the SBS started targeting the first home buyer market launching its own package combining the group’s services with lower interest rates.

About 34% of its total new lending over the year was from that package, with Kainga Ora Homes and Communities accounting for about 47% of new lending on first homes.

With the changes to the CCCFA on the way, Mr McLean expected to see more first home buyers start to get back into the market.

Property values were softening which meant so too had investment yields. That meant property investors were not as active in the market and also the change in view from the Government about how banks should access living expenses was helping mortgage applicants, he said.

Some buyers had already started to re-enter the market and Mr McLean expected that to increase in coming months.

As the Reserve Bank of New Zealand increased the Official Cash Rate (OCR) which would flow on to produce higher interest rates, he did expect some buyers to hold on from entering the market as they would not be able to service the levels of debt.

So far, increases had not put too many people off as the bank was still seeing very strong lending inquiry

Mr McLean was "very much" looking forward to seeing the changes to the CCCFA made later this month.

"The unintended consequences, even though we made them very clear at the time, are in reserve mode at the moment and that’s very good to see," he said.

The bank also announced a new 12-month term investment rate of 4% to keep pace with interest rates rising.

Mr McLean said the bank wanted to make sure while it was increasing rates for borrowers it was also being equitable for its funders.