I think I can get that net interest margin up a bit Cyclical. A home loan has an RWA (Risk Weightings Adjustment) as low as 35%. That means the loan capital to back up a 35% RWA $100,000 mortgage is not $15,000, but only 0.35 x $15,000 = $5,250. So the bank's cost of 'income in' verses 'funding' on that loan now look like this:
At today’s rates: |
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|
|
Loan Amount |
$100,000.00 |
1.99% |
$1,990.00 |
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|
Funding Sources: |
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|
Term Deposit |
$5,250.00 |
1.05% |
$55.13 |
RBNZ |
$94,750.00 |
0.25% |
$236.88 |
Total Loan Cost |
|
|
$292.01 |
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|
|
|
|
|
NIM ($) |
$1,697.99 |
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|
NIM (%) |
1.70% |
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That is of course is just the interest charge bit of the NIM. Normally on top of that there are application fees, approval fees, variation fees etc. Looking on the Heartland website for 'mortgage fees', this particular 1.99% offer looks clean (although that 20% deposit requirement might knock out some applicants). However, I think the key point here is that historical Heartland's 4% net interest margin is
across the whole loan book. In some loan categories, the NIM would be less than 4%. Furthermore the 'net interest margin' is only one input factor into the 'net profit margin'. It might be worthwhile settling for a lower NIM if it meant less follow up was required to manage payments due, which implies a positive effect on the 'net profit margin'.
SNOOPY