Banks' initial response to the COVID-19 lockdown was strong
The banking sector is still recovering from the impacts of the COVID-19 crisis, and the Reserve Bank of New Zealand (RBNZ) has warned that the sector's response to the pandemic would have a significant influence on the development of the financial system over the next decade.
The RBNZ addressed the COVID-19 crisis by delaying the implementation of its Capital Review's outcomes to allow banks to focus on supporting their customers. Meanwhile, banks had stepped up and supported their customers with mortgage deferrals, liquidity facilities, and covenant relief.
RBNZ deputy governor Geoff Bascand explained that banks should lend to productive, job-rich sectors to ensure the success of the country's economic recovery.
“The banking sector could choose to hunker down and seek to ride out the storm until the good times roll around again or it could continue to step up and play a crucial part in supporting New Zealand’s economic recovery,” Bascand said.
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With the impacts of COVID-19 on the economy and financial system, it would take some time before the country fully recovers, said Bascand.
“New Zealand's financial sector has proved resilient to the dual health and economic shocks and indeed supported the business and household sectors through strong business continuity arrangements, the accommodation of many customers through the restructuring of borrowing terms, and only a relatively modest tightening of lending standards,” he said.
“A financial crisis and ‘credit crunch’ on top of an economic crisis would be hugely disruptive for New Zealanders' wellbeing. The ability of financial institutions to absorb shocks, accept risk, and continue lending in the face of shocks is foundational to our regulatory framework.”
“Now is the time for banks to drawdown prudently on their buffers to support their customers. Shareholders will have to be patient for longer-term payoffs, but this forward-thinking, long-term approach will stand bank customers, banks, shareholders, the financial system and Aotearoa in the best position,” Bascand concluded.
