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Covid-19 Impact: Next Six Months Seen As The Real Test For NZ Banks

Sep 24, 2020
1879 Views

Profitability of the country’s banks has taken a significant hit from the Covid-19 pandemic but the worst may be yet to come, according to a new report.

Bank profits fell 13 percent to $776.9 million for the three months ended June, compared to the previous quarter, business advisory firm KPMG’s Financial Institutions Performance Survey found.

They fell 20 percent in the first quarter, and are now about half of what they were last year.

KPMG head of banking and finance John Kensington said the banks were in strong financial shape going into the crisis, and have come through the initial impact well, but he thinks the next three to six months will be the real test.

“The second lockdown, there’s been a bounce back, but the indicators are that it isn’t as strong. Some people have taken one body blow and got back from it but if you take a second perhaps you don’t get up off the canvas. I think it’s going to be the next two quarters when you see how things shape up.”

He said with the end of wage subsidies and mortgage deferral schemes the pressure would go on businesses and households, which is when the pressure would also go on the banks.

The amount put aside for bad and doubtful debts has risen by $1.6b in the past six months to $2.5b.

Bank lending was flat, but interest rate margins were markedly lower, income generally steady, and operating expenses lower.

Kensington said the banks had acquitted themselves well in responding to the needs of those affected by the pandemic, but would remain under the spotlight.

“Banks are having to give more consideration to how they identify and manage at-risk individuals at a time of financial hardship for many.”

“The RBNZ continues to make it very clear that it expects the banks to play a major part in how New Zealand deals with the current economic crisis, making sure vulnerable customers are protected.”

Kensington said the Reserve Bank had taken a soft approach regarding banks’ conduct but he expected the scrutiny would now start to increase.

He also expected the RBNZ would take the pandemic as a justification for its controversial moves of 2019 to make banks increase their capital levels, which have been put on hold.

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Kensington said the pandemic had accelerated the use of digital platforms for banking and he expected this would continue and see more physical branches closed or put on restricted trading hours.

Source: rnz.co.nz Republished by arrangement.

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