ANZ admits possible bubble trouble ANZ Bank chairman John Morschel says the new speed limits New Zealand has imposed on banks to cool its property market are like using a "sledgehammer to crack a walnut," but concedes local regulators could face a similar problem. After the Reserve Bank this week left interest rates at a record low 2.5 per cent, Mr Morschel said there was a danger current conditions could eventually lead to a housing bubble. But he played down concerns for the time being, saying the strong demand was mainly in Sydney and Melbourne in the under-$1.5 million market, and prices were simply responding to undersupply, as in previous periods of heightened activity. His comments were echoed by the chief of the nation's biggest home lender, Ian Narev, who said supply and demand fundamentals "easily justified" property prices. The Commonwealth Bank chief executive said there was no clear signal that indicated a housing bubble. He said offshore investors had raised the issue of house prices in his recent roadshow, following the bank's $7.8 billion profit, but no more than in the past. Capital city house prices have fully recovered from their fall from the previous peak in October 2010 after rising at an annual pace of 5.5 per cent last month, the fastest in three years, according to RPData. "We all know in a subdued, low-interest-rate environment that these risks exist, and therefore we have to be alive to them," Mr Narev told an Australia-Israel Chamber of Commerce lunch in Melbourne. The best defence is good, conservative, prudent bank management, and I think we have that. While not obviously alarmed, regulators are watching. The RBA and the Australian Prudential Regulation Authority have warned the banks not to relax lending standards to write more mortgages in a period of historically weak overall credit growth. Mr Narev said there should be an ongoing dialogue between the banks and regulators and politicians about industry settings. But he said there was "no pressing need" for those discussions at the moment. RBA governor Glenn Stevens this week appeared relaxed about the housing market, noting that the effects of previous rate cuts on interest-sensitive spending and asset values would flow through "for a while yet." But the RBA may face a looming headache of not wanting to cut rates to weaken the Australian dollar due to fears it may further inflate house prices. Building approvals for August yesterday fell short of expectations, signalling the RBA will have to keep rates low for longer to achieve its goal of boosting new construction. "The RBA don't want to fuel a property bubble -- they will never admit it publicly but they must be worried after what we saw in NZ when rates went too low," Goldman Sachs veteran trader Richard Coppleson told clients. To cool its property market, the Reserve Bank of New Zealand, which is also the nation's prudential regulator, this week introduced macro-prudential rules to limit the volume of loans banks write at loan-to-value ratios above 80 per cent. ANZ is the most exposed to the speed limit -- which is expected to hit the banks' margins -- followed by CBA, Westpac and National Australia Bank. "That seems to me like a bit of a sledgehammer to crack a walnut, but that's what they've done," Mr Morschel told the Australian Institute of Company Directors lunch in Sydney. They're in a bit of a dilemma, however, because they want the dollar to come down, so their hands are pretty tied in terms of interest rates -- and that's the condition the NZRB got themselves in. Mr Morschel declined to comment on speculation ANZ was eyeing a bid for Hong Kong's Wing Hang Bank, which has a market value of about $US4.7bn ($5bn). ANZ is also said to be mulling the sale of its 39 per cent stake in Indonesia's Panin Bank. Mr Morschel said ANZ assessed acquisitions and asset sales through the prism of its super-regional strategy to increase group earnings from Asia from 14 per cent to 25-30 per cent by 2017. "Basically, what we're looking for is the acquisition of a business or a disposal . . . that is consistent with that strategy, and one most important attribute from that strategy is it has to be shareholder value-accretive within a reasonable period of time," he said. We would also look at the cultural fit of the organisation . . . this is not always easy in a new and untested market. Asked about bankers' lofty pay packets, Mr Morschel also gave a ringing endorsement of the bank's chief executive, Mike Smith, who has overseen the Asian push and last year earned $10.1m. He confirmed that Mr Smith had been approached by British bank Barclays last year. "I think the performance of the organisation reflects the calibre of the CEO, and also his remuneration reflects what the global market is prepared to pay for him," he said. I was very, very relieved when Barclays approached Mike Smith and he said . . . 'my job's not finished at ANZ yet'. He was offered, I would dare say, a lot more money, but I don't know the details of that. But I think we're damn lucky to have him. Amid heightened jitters around the US political deadlock, CBA's Mr Narev said macroeconomic risks remained the biggest threat to the relatively sound Australian economy. But he said the level of risk was about the same as it had been for some time. He said the early signs from the new government were that it was trying to increase discussion about long-term policies to support the non-mining sectors, and confidence would probably build once a coherent growth narrative was communicated.