Non-bank lenders a pimple on the backside of the market

In a consultation that is underway on introducing debt-to-income (DTI) restrictions in the middle of this year, the RBNZ says it is aware the more macro-prudential restrictions, such as DTIs and LVRs that are placed on banks, the greater the chance of  loss of customers to non-bank lenders.

“This just won’t happen, Bolton says. “The non-bank sector struggles for funding at the best of times. It's not that big. It's tiny, it's a pimple on the backside of an elephant. It's small and insignificant.”

Introduction of the tool has been opposed by the major bank banks, with bank lobby group the New Zealand Banking Association maintaining there is a real risk of adverse customer impact if DTIs are introduced.

Bolton says the banking association has been over the top about this. “The major banks have such a huge competitive advantage in terms of their cost of funding. “Basically they get low cost deposit funds which they can then lend out cheaply and the non-bank sector can't compete with that. So, there's going to be no big shift to the non-bank sector at all. And bear in mind, those DTI’s are quite high. I think owner occupied borrowers with DTIs over six probably can't afford it anyway.