Covid 19 coronavirus: Bank boss backs extension to mortgage deferral scheme

ASB branch staff will wear masks and customers will also be urged to do so. Photo / File

ASB boss Vittoria Shortt is backing an extension of the mortgage deferral scheme but only for those who really need it.

The Reserve Bank is due to make an announcement this week on whether it will extend the mortgage deferrals scheme but has said it is only one of the options it is considering.

Nearly 60,000 borrowers (59,885) had agreed to a deferral of payments on $20.2 billion of home loans, personal lending, credit card or overdraft debt as of June 30, figures from the NZBA show.

A further 79,166 customers had agreed to reduced loan payments to either interest-only or a reduction in principal and/or interest repayments on $24b of debt that was either home loans, personal lending, credit card or overdraft debt.

Shortt said she would support an extension but for a smaller group that really needed help.

"A lot of customers are moving back to their original arrangements and so what that means is there is a smaller group of people that really need help. That smaller group needs access."

The bank on Wednesday announced its year to June 30 cash net profit fell 20 per cent to $967 million because of significant impacts from Covid-19 and the lower interest rate environment.

The bank increased its impairment losses on financial assets to $306m, up from $198m in the prior year.

Shortt said it didn't make any last-minute change to the provisioning after the Government announced a move to alert level 3 for Auckland late Tuesday night, but it did consider whether it needed to.

"The reality is it's too early for us to understand what might happen - [Tuesday] night's information was reasonably limited."

Shortt said it was too early to know if there would be an increase in loan defaults because of the rise in alert levels, but it would continue to review its provisioning on a monthly basis.

ALERTS2

Asked if she believed the alert level 3 lockdown would last longer than three days, Shortt said: "We have got to be prepared for anything."

"We need to be prepared for moving in and out of the alert levels and so our business and for others as well, it's about being prepared."

While its 5500 staff and contractors were allowed to come into work to grab what they needed on Wednesday morning, provided they stuck to social distancing, the bank had switched back to the systems it had in place during the first lockdown.

Shortt said only about 500 staff would be physically in the office over the next few days.

Branch staff would be wearing masks and it asked customers to do so as well. That's a sharp change for banks that have traditionally asked customers to remove anything over their faces during branch visits.

"We think it is really important to take on board the Government guidance, so we will support masks."

Shortt said the bank had plenty of stocks of masks for now but couldn't answer the question of whether that would be the case if there was a prolonged lockdown and it needed to source more at the same time as others were also doing so.

Business failures

Shortt said it was hard know if the increase in alert levels for three days would result in more business failures.

"We have seen different patterns for different customers. Some hardest hit initially have recovered really well. And other customers who were okay are now finding it difficult - it's a very case-by-case situation."

But she predicted it would result in a bumpier ride in terms of the economic recovery.

"That is why our primary focus is on financial support."

Applications for the Government-backed Business Finance Guarantee Scheme have continued to be low, but Shortt said she had expected that.

"I have always felt the BFGS will come into play later. That is the feedback we have had from customers. It is still early on into this. People are looking for relief from current lending, not looking for term lending.

"I think when more water has flowed under bridge and businesses have more certainty, they will look to it."

She said more businesses were strengthening balance sheets by taking on equity, which the bank saw as being very positive.

ASB chief executive Vittoria Shortt. Photo / File

Property market

Shortt said the change in alert level would have an impact on the ability of people to complete property transactions already in the pipeline.

But the previous lockdown showed it just delayed the transactions and activity had picked up strongly after the first lockdown period.

"The housing market is looking quite resilient. We are still forecasting a drop of 6 per cent from peak to trough, which will feel different in different parts of country. But at this stage the housing market is looking very resilient."

Shortt said the bank was focused on retaining high levels of capital and liquidity which would enable it to remain strong.