Mood of the boardroom: Pandemic has accelerated change

David MacLean says the Covid downturn is something the industry has to live with. Photo / Brett Phibbs

The banking industry is preparing to wear the impact from the economic down-turn caused by Covid-19 but one major bank boss says the full pain won't become clear until early next year.

David McLean, chief executive of Westpac New Zealand, believes the country will carry on a slow decline through the spring housing market, the election and Christmas.

"It won't be until the first quarter of next year, we will see how deep the pain will be."

Fortunately banks entered this crisis with strong balance sheets and have continued to lend to both business and retail customers. But credit has tightened and mortgage brokers say getting a loan requires answering more questions than ever before.

Nearly 150,000 consumers loans — mainly home loans were either on deferred or reduced payments adding up to $50.6 billion as of August 31 — 17 per cent of total consumer loans.

Banks have also put aside large provisions for expected loan defaults. The percentage of non-performing loans has crept up but remains low — under 1 per cent for most of the major banks.

McLean said the economic down-turn was something the industry just had to live with and it was trying to see Covid as a disruptive event and look at how it can harness the benefits.

The lockdowns have also accelerated underlying trends that were already happening such as the move to digital.

McLean said New Zealand's first nationwide lockdown in March showed banks that Kiwis were largely able to cope without having to go into a branch. "The first lockdown showed people were able to continue banking with branches largely being shut."

Westpac was only allowed to open around 30 branches for one day a week and McLean said there was no sign of queues at the time.

The pandemic has also seen cash become more scarcely used as it is viewed as unhygienic, along with the rise of contactless payments.

Banks temporarily dropped fees for contactless debit payments for small businesses although most have brought them back now at a lower level than they were pre-Covid.

The Labour party has also promised to regulate the fees to bring them down further if they are re-elected to Government.

And cheques will virtually disappear next year with all the major banks signalling they will follow Kiwibank in stopping the acceptance of them.

McLean said many of the changes were already happening in banking but Covid accelerated them. "I think it will accelerate not just closures but how bank branches look."

He said in the past branches were there to give people access to cash and to bank it and because of that they were built near where people were. But a branch was now somewhere people were more likely to go to talk about a more complicated financial decision like getting a mortgage or business loan.
"This happens far less often."

That meant people might be prepared to travel further for something they don't need to do on a regular basis.

Instead of queues to see a teller, branches could involve more meeting rooms with the role of the banker more about giving guidance, he said.

But the caveat was while that worked for 85 to 90 per cent of the population there was still an older demographic which didn't trust technology and another group that for poverty reasons did not have access to a smartphone or internet access which allowed them to bank online. "We in banking need to think about how do we help those people."

But McLean said he did not believe the solution lay in keeping a whole lot of branches open. "That is a cop-out way of dealing with it."

He would rather come up with solutions like finding ways to get smartphones to those who need it.

He also questions whether banking products are currently suitable to helping those in a more vulnerable financial position.

"If you want to buy a house we have a suitable product. If you are struggling and using a payday lender, probably we don't have the product for you and can't even get to you."

He said some banks had moved to help people in that position but more needed to be done.

Rural and small town branch closures have upset many customers in recent years with some having to travel long ways to access banking facilities.

The banks came to an arrangement with the Government to put a pause on those closures and trial regional banking hubs instead.

The opening of the first was due to happen in April but was delayed because of Covid and is now targeted for November.