Westpac chief executive David McLean is predicting a sharper down-turn than NZ saw during the global financial crisis. Photo / File
Westpac chief executive David McLean is predicting a sharper down-turn than NZ saw during the global financial crisis. Photo / File
The Covid-19 coronavirus will lead to a sharper downturn than that seen after the Global Financial Crisis or 1987 sharemarket crash, the head of Westpac bank says.
But New Zealand chief executive David McLean believes New Zealand's economy could also bounce back faster because the problems are being caused byone main issue.
"There is going to be a very steep downturn."
"It's unlike other downturns because it is caused by one thing."
But he says if that passes through then New Zealand could bounce back quickly.
Still the bank is preparing to wear some pain from the crisis, revealing yesterday it had increased its impairments to $211 million for the six months to March 31, from the $14m in had in the prior corresponding period.
Ian Hankin. chief financial officer of Westpac New Zealand, said of the $211m provision $147m was linked to Covid-19.
That was based on an economic overlay looking at predictions for GDP, unemployment and house prices aimed at trying to predict what its losses were going to be, he said.
The remainder of the provision was largely linked to two defaults.
McLean said one of them was $40m, the other $9m. They were pre-Covid-19 and were part of business as usual for the bank.
The bank won't know the actual hit until it goes through the cycle and individuals and consumers default on their loans.
The bank has gone from a massive spike in calls a few weeks ago to a steady stream.
Initially it was homeowners calling about mortgage relief but now the focus was around people in business getting back to work.
"They are starting to analyse what the prospects are for the business."
Banks have been criticised over their handling of the Business Finance Guarantee scheme, which is 80 per cent backed by the Government, with small businesses groups saying some were turned down while others couldn't meet the criteria or level of paperwork required by the banks.
On Friday the Government announced a small business cashflow loan scheme to give interest-free loans directly to small businesses as the Government expressed disappointment that the bank scheme hadn't worked as intended.
McLean said the BFGS wasn't initially aimed at small business because it had a minimum revenue requirement of $250,000.
"That's a medium-sized business in New Zealand."
The minimum has now been removed as well as a raft of other tweaks including the requirement to provide a general security agreement for the scheme.
"The key thing about that scheme was the wage subsidy, because it was paid upfront it provided really good cashflow."
McLean said that gave some businesses a bit of a buffer. Now that was being eaten away they were having to look elsewhere.
He said a lot of people didn't realise when the scheme was announced that it was a loan.
And that meant banks had to make an assessment of the borrower.
"I think overall the scheme has operated as it was designed to."
He predicted the loans would be more about providing medium-term support.
McLean said the big challenge for Westpac now would be marshalling its resources to help customers.
"How do we get them set up for success in six months' time?"
He said it would not be feasible to have a one-on-one conversation with all of them and the bank was looking at using technology where people could select an option for their loan and those who really needed help would get a phone call.
McLean said instead of writing new loans it would be helping people with existing debt.
"We haven't really had to do this in New Zealand for 10 years."
"It's just going to be quite a different type of activity. But our staff are really up for it."
