Banks are looking at allowing small to medium sized businesses and mortgage customers to suspend payments for a period as many firms curtail their activities or lose custom due to the coronavirus crisis.
BusinessDesk understands this follows an emergency meeting between the Reserve Bank and trading banks over the weekend.
The package of concessions would be essentially similar to the measures announced in Australia.
The four major Australian banks, which own New Zealand's four major banks, have agreed to suspend payments on A$100 billion in loans to small businesses for six months and offer mortgage payment relief to residential mortgage customers who lose their jobs due to the crisis for an initial three months. That would be renewable for a further three months.
The Australian banks are also cutting interest rates on these loans – for example, Commonwealth Bank of Australia, which owns ASB Bank, will cut rates on small business loans from 9 percent or 9.5 percent to as little as 4 percent.
Interest accrues
However, the interest owing on those loans will continue to mount through such suspensions.
The mortgage relief is as much a measure to relieve banks as it is for their customers.
In New Zealand, mortgages account for 62.1 percent of ANZ Bank's balance sheet – it is the largest in New Zealand – at Dec. 31. For ASB they account for 65.8 percent of total lending, 60.9 percent of Westpac's and 49.3 percent of Bank of New Zealand's. National Australia Bank owns BNZ.
BusinessDesk understands that there are regulatory hurdles in New Zealand which would have to be removed before measures similar to those in Australia could be adopted.
While the Reserve Bank has conducted a number of stress tests on the banks, all of which resulted in them easily surviving a number of different simulated crises, none of the published studies modelled anything like the current crisis.
Capital requirements
The RBNZ had decided on higher capital requirements for the banks but has suspended their introduction for at least a year to July 2021.
Nevertheless, the local banks are going into the current crisis in a reasonably strong position with average capital of about 12 percent of risk-weighted assets.
The Australian measures are part of a raft of emergency actions coordinated by its federal government which unveiled a second fiscal stimulus package over the weekend totalling A$66 billion, following a more than A$17 billion package announcement two weeks ago.
Last week, New Zealand's government announced a more than $12 billion package, equivalent to 4 percent of GDP, to try to stabilise the economy during the crisis.
BusinessNZ and the New Zealand Initiative said last week's package was the right first step but more was needed.
They noted that the Australian package was now equivalent to 9 percent of that country's GDP, and included income support for employees and cash grants equivalent to withholding tax.
The two groups said local businesses would "appreciate" the New Zealand government undertaking a similar approach and outlining the next likely steps and the timeframes for that additional support.
