However, it says shareholders will need to be patient about long-term payoffs
The Reserve Bank of New Zealand says it will take “some time” before we see a full economic recovery from the COVID-19 pandemic, however, deputy governor Geoff Bascand has praised the banks’ response to the recent economic shocks.
In today’s speech, Bascand said the banking sector’s response to the pandemic will have a “major influence” on New Zealand’s financial system over the next decade, and praised the sector for its “strong” response to the difficulties faced by customers as a result of lockdown.
“Banks stepped up and supported their customers with mortgage deferrals, liquidity facilities, and covenant relief,” Bascand said.
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“But a key determinant of the success of New Zealand’s economic recovery to come will be the willingness of banks to lend to productive, job-rich sectors of the economy.”
“The banking sector could choose to hunker down and seek to ride out the storm until the good times roll around again,” he continued. “Or, it could continue to step up and play a crucial part in supporting New Zealand’s economic recovery.”
Bascand says that shareholders will “need to be patient” with their longer-term payoffs, as banks will need to drawdown on their buffers in order to continue supporting customers. He says a forward-thinking, long-term approach will stand customers, banks, shareholders and the financial system in the best position for recovery.
“Beyond the immediate crisis, the banking sector must confront long-term low interest rates, and an eye to the future will also pay heed to emerging risks and structural disruption from accelerating digitisation and new forms of competition,” Bascand added.
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“The COVID-19 crisis has reinforced the Reserve Bank’s focus on both resilience and risk management - which is evolving to be more attuned to the changing structures and dynamics in the financial sector.
“These longer-term structural changes in the sector highlight the importance of a regulatory system and perimeter that can adapt to non-traditional financial entities, which is a key consideration of Phase 2 of the Review of the Reserve Bank Act.”
