Anderton criticises banks

A senior Cabinet minister has criticised banks for fuelling the housing debt boom and has suggested they have only themselves to blame.

Agriculture Minister Jim Anderton's comments come after BNZ economists warned last week that house prices were overvalued by about 30 per cent and that house prices could fall by more than the 10% the bank already presumed for this year.

Anderton said yesterday that if house prices fell as much as the BNZ was warning, banks should look in the mirror.

"The banks have provided the fuel that has pushed up house prices over a fairly long period now."

Banks had authored their own misfortune and should have been more cautious with their mortgage lending, Anderton said.

Total lending rose between February 2007 and February this year by $36,679 million. That was an increase in lending of 14.3%.

"In other words, debt was growing much faster than inflation and underlying real incomes. Obviously, that was fuelling the house price increases that the banks now know could be reversed."

Nearly half of the increase in lending -- 46.9% -- was for households.

Only 12.1% was for agriculture, 10.4% for property and business services, and 15.3% for financial institutions.

He said without housing loans, the banks' balance sheets would have been halved at least.

"House prices have been rising faster than the rate of inflation as a result of the banks' beliefs that loans secured against bricks, weatherboards and mortar simply could not fail to provide profits for the banks.

"Although wages and incomes in New Zealand have been growing quickly, they have not been growing at a pace that could keep up with inflating house prices.

"It's all very well to warn now that house prices could fall, Anderton said.

"But where was the BNZ a year ago when it was maintaining another 14% increase in indebtedness?"

Banks' internal audit practices appeared to have failed to alert them to risky practices.

"It's a bit rich for the pot to now be calling the kettle black," he said.

Anderton has been a long-standing critic of foreign-owned banks.

He championed the setting up of New Zealand-owned Kiwibank. --NZPA

- © Fairfax NZ News