Finance Minister Grant Robertson on the Mike Hosking Breakfast - April 7th
Adrian Orr has called on banks to be "courageous" as they look to support businesses, with a scheme to encourage lending to businesses asking them to take on little risk.
Officials from the Reserve Bank appeared before MPs on the epidemic response select committee on Thursday, insisting the New Zealandbanking system remains well capitalised and the financial system sound.
Orr, who has had a combative relationship with the major Australian banks since returning to the Reserve Bank, said the banks were stronger now than when they were heading into the Global Financial Crisis, with higher capital and liquidity and more stable access to offshore funding.
After the "moral reckoning" of the Australian banking inquiry, as well as a lesser probe here "there is a real sense of commitment to their customers" Orr said.
But he urged the banks to consider their "social responsibility" and long-term sustainability, because of the influence on the economy.
In late March, Finance Minister Grant Robertson announced the Government was putting up more than $6 billion for working capital loans to business, which would see $4 of Crown money lent for every $1 from the banks.
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"The banks have to be out there doing the business, they have to be courageous, and they have to be thinking of the long-term welfare of their customers," Orr said.
As well as needing to be profit-making, they also had a role "to make sure they're thinking through the long term, not just the short-term preservation of their profitability, but the long-term preservation of the New Zealand economy, and hence their sustainability".
The structure of the Government-backed loans meant banks were taking only a small portion of the risks.
"Banks are there to risk share and capital allocate. There risk sharing is only a small proportion of the total risk being shared."
Orr said the banks should be called before the select committee, which could speed up the publication of data which the New Zealand Bankers' Association said it would publish on lending.
"In the absence of that it's going to be death by anecdote."
New Zealand Bankers' Association chief executive Roger Beaumont said the group would be publishing aggregated data "which will show how banks are supporting both business and personal customers in practical ways".
Despite his upbeat view on the health of the banking sector, Orr warned banking profitability would inevitably come under strain if unemployment rose sharply and persisted above 10 per cent.
"The single variable that most challenges the profitability of banks is unemployment" Orr said, more than the affordability of loans.
If house prices fell "you can just choose not to sell, but if you do not have a job and that's looking like [lasting] a persistent period of time … that's when banks are seriously challenged," Orr said, adding that he meant unemployment of more than 10 per cent.
"We're a long way away from not just the unemployment numbers, but certainly from the capitalisation of the banks, given we had that good starting level, there's plenty of capital.
"We've estimated at the beginning of this, probably close to $100 billion of capital over and above our regulatory minimums".
