Auckland's Queen St on day one of the Level 4 lockdown.
They were unprecedented times but New Zealand's major banks were ready to support big and small companies rattled by the Covid-19 crisis.
When the $50 billion Covid-19 response and recovery fund was established in the May Budget, Finance Minister Grant Robertson said the government surpluses from previous years prepared "us for the rainy day". A similar scenario was played out by the banking sector.
The major trading banks went into the Covid crisis with strong liquidity and capital, and they could act quickly to support businesses. For many small and medium enterprises (SMEs), the immediate support eased their anxieties and kept them afloat as the rainy day arrived.
During the lockdown BNZ, ANZ and Westpac, for instance, connected with about 50,000 SMEs, providing some form of loan relief to many of them, and the banks approved a total $6 billion of new lending to more than 600 corporates.
Some corporates have not yet drawn down on their new lending facilities, and more than a half of those SMEs supported are now back making full repayments.
"We were in the privileged position to not only be considered an essential service throughout the lockdown, but also to arrive at lockdown in pretty solid financial position," said Antonia Watson, chief executive of ANZ New Zealand.
"We are not just dealing with numbers, here, but emotion," said Mark Hiddleston, ANZ's managing director commercial and agri. "Most of the customers we helped were privately-owned companies with friends and families, and most of our team were working from home.
"Winning new business and growing our market stopped while we put all our resources into supporting our customers," he said.
Roger Beaumont, chief executive of New Zealand Bankers' Association, said the banks' liquidity and capital were at levels above the minimum required, well above those at the start of previous crises (such as the Global Financial Crisis in 2008/09).
"Our banks were well placed to help financially-affected households and businesses get through," he said. "It favourably tested the banks agility to respond in a crisis. There is plenty of credit available to businesses that want and can afford it.
"The Covid pandemic has had an unprecedented impact on our economy, and banks have very much stepped up to the challenge," he said.
Beaumont said banks were sharing the financial burden facing New Zealand by stopping dividends to shareholders and already reporting that profits are down, largely due to the need to provision for bad loans.
He said the Government and Reserve Bank had helped free up the financial system so banks could focus on dealing with the crisis. They were supervising the banking system closely to make sure it is doing what it is designed to do — absorb economic shocks.
Direct government grants to business such as the wage subsidy have been targeted and provided immediate relief for many businesses.
"That's probably eased demand for loan schemes which still require banks to be responsible lenders and businesses to see a way through and make repayments," said Beaumont.
"While credit supply is not an issue, the demand side of things is another matter. Demand is determined by businesses willingness or ability to take on new debt, and it's fair to say demand for credit hasn't yet matched supply. Demand for loan relief, however, has been fairly strong."
According to figures collected by the Bankers' Association for the period March 26 (the first day of the lockdown) to the end of June, banks approved new lending of $12.6b for 21,875 businesses. The banks reduced repayments on loans totalling $13.6b for 13,295 customers, deferred repayments on $1b worth of loans for 3065 customers, and restructured other loans totalling $7.4b for more than 2800 businesses.
Beaumont said business owners who used their home to secure a loan for the business may have also reduced or deferred their mortgage repayments. Nearly 80,000 customers have reduced repayments on home loans totalling $24b and 60,000 customers have fully deferred repayments on home loans worth more than $20b.
There are more than 487,000 SMEs, representing 97 per cent of all businesses in New Zealand. They employ 30 per cent of the country's working population and produce around 27 per cent of New Zealand's gross domestic product.
While the Small Business Cashflow Loan Scheme administered by Inland Revenue was popular, the uptake of the Business Finance Guarantee Scheme (BFGS) has been slow. Between the end of March and June 664 businesses signed up for the BFGS loans totalling $121 million.
Inland Revenue had lent $1.4b to more than 85,000 small businesses, with the loans averaging about $17,000. The cashflow scheme was designed for businesses employing less than 50 full-time equivalent staff.
The businesses could access $10,000 plus $1800 per full-time equivalent employee, and self-employed and sole traders could apply for $11,800. The loans are interest free if paid back within a year.
Under the Business Finance Guarantee Scheme, businesses with turnover of between $250,000 and $80m could access loans of up to $500,000 through their banks to meet urgent liquidity or bridging financing needs due to the Covid disruption.
Beaumont said the guarantee scheme competed with other forms of business support such as the wage subsidy. Treasury did what it was supposed to do and protected the Crown's interests by imposing a number of scheme conditions that made it unattractive to some potential borrowers. "By the time the scheme conditions were relaxed it may have suffered some brand damage. At the same time the IRD loan scheme was introduced which had more attractive benefits for businesses including interest-free for up to a year. It makes sense businesses have gone for a simpler, cheaper scheme," he said.
Meanwhile, banks were offering a range of financial assistance or relief to Covid-affected customers such as fully deferring all repayments, establishing temporary overdrafts, reducing loan repayments to interest only, waiving fees on contactless debit card transactions, and even restructuring loans including extending the term.
Kiwibank went one step further. The biggest New Zealand-owned bank slashed its floating rate by 1 per cent on home loans (from 4.4 to 3.4 per cent) and business lending products including variable loans, revolving credit and overdrafts.
That would save more than 35,000 home loan and business banking customers $20 million in repayments. A business with a $1m overdraft facility would save $10,000 in a year.
"That's us challenging the market to step up and help the recovery of New Zealand business," said Nigel Gaudin, Kiwibank's general manager business banking and specialist markets. "There's still a period of time to play out, and the next six to nine months will be challenging for the long-term viability of (some) businesses."
Gaudin said when the lockdown occurred customers made contact and wanted to have a conversation rather than actually seeking support. "They wanted to talk about the situation and plan for different scenarios. There was a lot of uncertainty. They didn't want to take on more debt if they didn't need to.
"The risk from here is do we continue to see New Zealanders spend the way they have done in the last two months if the border remains closed? The situation is still very fluid.
"We came into Level 2 and 1 sooner than expected, people could get back to work and business revenue, among our customers, has recovered to at least 70 or 80 per cent of pre-Covid levels.
"The conversations changed markedly — lately they have been more upbeat, far better than expected, and we talked to our customers about reforecasting their business and creating new plans."
Gaudin said he hadn't seen any real uplift in small and medium-sized businesses closing their doors.
Kiwibank provided more than 7000 care packages for business and personal customers that reduced the principal repayments on their loans and made them interest only.
When the Reserve Bank reduced the official cash rate to 0.25 per cent from 1 per cent in mid-March, ANZ immediately passed on the 0.75 per cent reduction to loans held by 180,000 customers.
"We pulled the lever and provided 75 basis points of support; that was meaningful support and it relieved immediate pressure," said Hiddleston.
Watson said ANZ adopted a three-pronged strategy to support businesses: reduce customers' costs straightaway by dropping interest rates; preserve their cashflow; and provide them access to capital and additional funding. She said more customers saw access to capital as a last option because few wanted to take on new debt in uncertain times. However, by the end of May ANZ provided $2.2b in new lending. Normally, ANZ would take 250 calls a day from business customers but the calls peaked at 1200 on March 24.
"It was firstly questions and asking 'what do I do, how do I pay my bills'," said Hiddleston. "The UDC Finance phone was ringing hot. They were worried about their interest and principal payments on productive assets such as buses and diggers. We turned off the amortisation (of their assets) for 85 per cent of them and this represented billions of dollars."
About 10,000 business customers had their loan payments rescheduled, with more than $11b in lending having adjustments over a four-week period.
Watson said during this time "we also saw businesses take advantage of the Government's wage subsidy and these advance payments helped boost cash balances and keep staff employed."
Many landlords were being flexible during this time, accepting less rent from tenants unable to access their properties, she said. ANZ data showed the median rental payments on commercial property were down 31 per cent in May compared with the same time last year.
Karna Luke, BNZ general manager growth and performance, said his team was in contact with some 20,000 SMEs, providing loan relief but also helping them identify new revenue options such as switching to online.
"We need to retain the SME economy, and we worked closely with businesses and their advisers, assessing their financials, fixed and variable costs, current lending conditions, and looking at future projections. We were all on the same page about keeping the businesses viable."
He said 64 per cent of SME customers were back making full repayments after earlier receiving financial support. "That's positive."
David Blakey, BNZ general manager institutional banking, said by mid-April, the bank approved $1b of new lending to 200 major corporates, making up 10 per cent of its portfolio.
"What we saw after the Covid lockdown was that the institutional market behaved very differently to the SMEs," he said. "In the first three weeks (of the lockdown) a number of large, sophisticated borrowers such as primary exporters asked for additional funding.
"They were well regarded, well structured businesses that pre-Covid had access to the capital markets here and offshore.
"They had outstanding capital markets issues and were uncertain whether they could roll them over.
"They wanted to shore up their working capital if their cash position became tighter through supply chain disruptions or they didn't get paid.
"We provided new lending very quickly to help them through a difficult time," Blakey said.
"We saw a bow wave of requests and they were being proactive in managing the situation in a prudent and appropriate way. We waived covenants and made changes to the conditions of lending so they could have access to funding. Then one by one they successfully tapped the equity markets to restore their capital position and repay the bank debt."
Blakey said many of the banks' customers traded better than expected; they managed their cost base and conserved cash — and the majority of the new lending has been repaid.
He said the initial rush of activity had slowed and it was now business as usual. Customers now had a better understanding of the Covid impact and the bank was working with them one on one according to their circumstances.
"We can give them insights into retail spending, construction activity and what the economy is looking like and test their business plans.
"Businesses need to make decisions between demand for their products and reducing their cost base, and they may finish up smaller than what they are now.
"We've seen restructuring and job losses and logic tells us we will see a lot more. It's still early days," Blakey said.
During the Covid crisis Westpac has provided $3b worth of new business lending, and changing loans to interest only or reducing payments represented $1.6b.
Half of the customers are already back making full repayments.
Westpac donated $1m to the rescue helicopters in Auckland, Hamilton, Wellington, Canterbury and the 11 regional trusts.
The bank waived fees on contactless debit card transactions until September 21 and minimum monthly merchant service fees through April and May.
Simon Power, general manager corporate, commercial and institutional banking, said the requirements of businesses have varied depending on the sector.
"Some were in reasonable shape and needed short term cash flow; others needed more immediate help through restructuring and creating new (lending) facilities.
"Businesses have tried hard where they can to steer away from new debt and they have been really good to adapt a model to stay viable," Power said.
"Businesses, particularly in retail and hospitality, have accelerated their digital plans and going online," he said. "They had been thinking about it as an option and decided to take the plunge — that's been an emerging trend."
Power said businesses accessed facilities and products that already existed as opposed to applying for the new Business Finance Guarantee Scheme.
"We had a suite of solutions that were already established.
"The banking system is strong and well capitalised, and the critical point is when the wage subsidy comes off. We stand ready to support customers and help in the recovery of the broader New Zealand economy," he said.
Kiwibank: Fast cash for SMEs
Kiwibank has launched a digital platform that provides lending decisions for small and medium enterprises (SMEs) in five minutes rather than the usual five working days.
The Fast Capital platform links Xero and MYOB AccountRight company accounting data to Kiwibank, and businesses can apply for up to $100,000 capital on an overdraft, loan or credit card. Kiwibank is the first bank to use this technology designed and developed by Auckland-based fintech company, Ranqx.
The automated and integrated online loan application process for business customers takes up to five minutes. Bank staff will then contact the customer to discuss the next step.
Nicole Pervan, Kiwibank's general manager for product, said the online decision-making process provides businesses with a quick and painless borrowing experience: "In comparison, the time it takes to get a credit decision through a normal process can be five or six working days. We know time spent dealing with bank administration is a point of frustration for many businesses — it's great to deliver an innovative solution so businesses can focus on other priorities," she said.
"All businesses have ups and downs, and Covid-19 has exacerbated this.
Fast Capital provides support for businesses, giving them access to extra funds when they are needed and fast." Following the Covid temporary reduction of the standard interest rate on its Business Mastercard, Kiwibank has now set the rate at 12.5 per cent, down from 16.9 per cent. The new rate applies to statements issued from July 16 on.
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