Coronavirus: Billion-dollar-profit banks must show they care about NZ in bad times, Shane Jones says
Monday, 4 May 2020
Banks are in danger of jeopardising their “social contract” if they do not do more to help New Zealand businesses survive the Covid-19 disruption, Associate Finance Minister Shane Jones says.
On March 24, the Government launched its Business Finance Guarantee scheme, which was designed to make it easier and cheaper for businesses to access funding to get them through the downturn.
But businesses report having trouble accessing those loans, and the numbers approved are small.
In that scheme, the Government takes the risk of 80 per cent of any loan default. Finance Minister Grant Robertson last week announced banks will no longer be required to request security for those loans, in an attempt to get money flowing more easily.
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The loans are cheaper than traditional bank products - ASB charges between 0.8 per cent and 3 per cent, because of the Reserve Bank's support for the scheme's funding costs.
Robertson said it was clear the support banks were providing to small businesses 'was not meeting their needs, nor our expectations as a Government'.
It has also launched an interest-free loan scheme for small businesses, administered by Inland Revenue.
Jones said MPs received “tales of woe” on a regular basis about how banks were handling the scheme.
He said banks risked being seen as taking their share of a strong economic run, and then backing away when the downturn hit.
Bankers needed to act fast to find ways to help New Zealanders, he said, and justify the billions of dollars in profits earnt in recent years.
“They can’t just sup at the banquet table when things are sweet… their social licence, I believe, is in play. Their only appetite is for the upside, they’re not willing to wear the pain with the rest of New Zealand. They’re taking their social licence for granted.”
The big four banks would not disclose how many applications they had approved. Kiwibank said it had received 142 applications and approved nine so far.
ANZ chief executive Antonia Watson said, when releasing her half-year results, that the number was small. But she said that was what should be expected because they were designed as a product to help businesses as they navigated the recovery period, not the initial downturn.
Westpac would only say it was in the early stages of processing 700 applications. ASB said the number of approved would grow quickly. BNZ said 1100 expressions of interest had been received.
New Zealand Bankers' Association chief executive Roger Beaumont said, outside the Business Finance Guarantee Scheme, banks had lent $6.4 billion to businesses since the lockdown began.
“Businesses are likely to be confident of applying for the [scheme] only once they have formed a clearer view of their longer-term prospects and needs.
“To cope with the immediate effects of the Covid-19 crisis a lot of businesses have taken the wage subsidy. Because it was paid upfront, the cushion provided by the wage subsidy has meant that many businesses have not yet had the need to look for other assistance.
“Most businesses have been in lockdown at level 4 and staff will only now be starting to return to work. It has been difficult for them to assess the longer-term outlook for their businesses.
“So far, many businesses needing a loan have, for example, opted to quickly roll over short term funding or extend overdrafts already in place with their bank.”
Westpac chief executive David McLean said many businesses were not in a position to know what they needed yet.
To apply for a loan, they would need an idea of their business's prospects, he said.
'The scheme is working as expected… critics are barking up the wrong tree.'
Claire Matthews, a banking expert at Massey University, said she wondered whether expectations of the scheme were unrealistic.
“I was surprised to see Westpac saying, two or three weeks after the scheme was introduced, that they still weren’t sure how it would be implemented.
“The banks do need to continue to have a level of caution - they have a risk of loss if they get it wrong. However, with the Government guarantee they should be able to relax the rules to an extent - but more in relation to liquidity and cashflow than security… there is still a need to assess the future viability of the business being lent to - in some cases, Covid-19 has simply hastened the demise of struggling businesses.
“It’s unclear to what extent the inability for money to be borrowed reflects a reluctance by borrowers to provide the requested security - that’s certainly been a factor in some of the cases I’ve seen publicised. It’s also important to remember, banks make their money and rely for their survival on being cautious. It’s challenging to expect them to change that quickly.”