Talk to the bank, mortgage-holders told
Kiwis are urged to talk to their banks if they cannot pay the mortgage and other bills as the effects of coronavirus spread.
Government actions to slow the spread of coronavirus, including limits on gatherings to 100 people and closing the border, are already hitting tourism and hospitality businesses.
As the threat level rises, increasingly severe measures will be rolled out, based on a four-stage virus alert system announced on Saturday.
Job losses could reach 67,000 as coronavirus causes international tourism to dry up and consumers to shut their wallets.
Banks would take a profit hit, said Massey University banking expert David Tripe, but it was in their interest to try to keep personal customers afloat. ‘‘I don’t think banks have had to do much for their personal customers yet but I would expect them to want to do so, to the extent that people’s situation is remediable.
‘‘There will be some small businesses which will have raised funds against their mortgage which will be struggling. Then other people whose jobs will be lost but it varies depending on circumstances.’’
When people had some idea about their situation, they needed to talk to their bank.
‘‘The ones that are really tricky are the ones who forget or neglect to talk to their banks, because then you cannot discuss options – you force the bank to take action.’’
Mortgagee sales were a last resort and banks did not like them because of the effort and cost involved, Tripe said.
For mortgage-holders, banks could offer mortgage holidays, interest-only payments, or potentially an offer of some additional funding.
ANZ encouraged customers experiencing hardship to get in contact as soon as possible and discuss their situation.
‘‘The sooner they get in touch, the better placed the bank will be to help as every customer’s situation is different and help will look different in each circumstance,’’ ANZ spokesman Stefan Herrick said.
‘‘We can offer short-term loan repayment relief to give customers a break from making home loan repayments, depending on their circumstances. We can also restructure loans to increase the loan term to reduce your regular payments, or change to interest-only payments for a period.’’
Westpac said on Friday only a relatively small number of ordinary households were asking for help as a result of
Covid-19 – about 150 people, compared with more than 10,000 conversations with business customers.
Westpac had been redeploying workers, and even calling some experienced bankers out of retirement, to cope with the surge in hardship inquiries.
If people could not recover and had to sell their house, Tripe said the best option was to try to sell the house themselves, despite an expected decline in house prices.
‘‘There will be some people whose situation is hopeless – but if it is hopeless now it was probably hopeless six months ago actually, and been covered over, but that is going to be a relatively small proportion of banks’ overall lending,’’ he said.
‘‘By the end of the year things will be probably starting to improve a bit and people will be back earning income again – I think that is realistic, if not by the end of the year certainly by the middle of 2021. So it is going to take a bit of time to turn around but it is not panic area.’’
Banks had passed on last week’s Reserve Bank rate cut fairly quickly but with most people on fixed rates that would take some time to filter through.
However, bank funding costs were not falling as much as the official cash rate (OCR) reduction, he said.
‘‘It is probably only a shortish-term phenomenon, there has been a tightening up of funding markets internationally and that has meant that banks’ actual funding costs have not come down quite as much as the OCR and wholesale markets.’’
Tripe did not see the banks as being in immediate trouble as a result of the outbreak.
‘‘Whether they are prepared to take a profit cut or not, they will be hit with a profit cut.
‘‘I think bank investors would be realistic about that.’’
The Government has launched a $12.1 billion scheme to pay people to stay at home, if needed, and to keep people in work.
Banks have also been given the ability to help customers, with the Reserve Bank nod to use the capital they have stored for rough times, making an extra $47b of lending capability available.
Reserve Bank governor Adrian Orr said the central bank had more firepower in reserve to keep the financial taps turned on.
Banks’ combined net profit dropped 0.99 per cent last year to $5.71b, business consultancy KPMG said in its annual report on financial institutions.
However, it followed two years of steady profit growth.
During the global financial crisis, which began in 2007-08, banks’ losses were mainly in relation to commercial lending, not personal customers, Tripe said.
‘‘That probably would be the case again this time – and simply because there is a whole lot of businesses that are going to be in quite straitened circumstances. Personally, I think that would be the biggest source of worry to banks.
‘‘Supermarkets will be OK but many others – the little bakeries, the cafes, the restaurants, anything with an entertainment focus – they are all facing significant losses.’’