The Bank of New Zealand has all but stopped providing mortgages to people with small deposits because of the Reserve Bank's decision to restrict such lending.
The central bank has ruled that each bank can lend no more than 10% of its total mortgage lending to people with deposits of less than 20%. The restriction came in on 1 October.
BNZ chief executive Andrew Thorburn says it is still early days and he is not sure the restrictions will work.
He says the Reserve Bank loan to value ratio (LVR) restrictions are having an impact from an operational perspective.
"It's affecting customers because we're obviously having to restrict quite significantly the amount of above 80% LVR lending that we can do, in fact we're doing hardly any now because of the restrictions."
Mr Thorburn says it is only the first month of the restrictions and it will be necessary to wait to see the longer term affects of the restrictions.
He says it is likely there will still be pressure on house prices in Auckland notwithstanding the LVR restrictions, as demand for housing increases and greater supply cannot be met in the short term.
Cash earnings increase 6.3%
Mortgage lending by BNZ, which is owned by National Australia Bank, rose nearly 4% in the 12 months to the end of September.
Details of its mortgage lending in the September quarter will not be known until it releases its disclosure statement but its June quarter statement showed 47% of its net new mortgage lending in those three months was to people with less than a 20% deposit.
BNZ's annual net profit rose nearly 20% to $695 million but Mr Thorburn says that is not the best measure of his bank's performance.
He says the New Zealand banking operations of BNZ provide a more indicative result and that is where its operational businesses reside such as business lending, retail deposits and home lending.
Mr Thorburn says when the New Zealand side of the operation is considered, the cash earnings have gone up 6.3% over the course of the year.
He says that reflects some good volume growth in the likes of agribusiness, business lending and home lending.
Mr Thorburn says there has been some margin compression in the second half of the year mainly as a result of customers moving from floating to fixed rate mortgages.
He says the bank is continuing to grow deposit market share which is important for an even stronger balance sheet.