Banks can help by ‘sharing the pain’
ANALYSIS: Bankers have got the message that when good customers hit hard times, they have to help them.
John Kensington, KPMG’s head of banking and finance, interviews senior bankers for an annual report on bank profits.
In his latest report, published last week, Kensington writes: ‘‘Sector participants . . . noted that there was an expectation on them to help customers through recessionary times by doing whatever they could do to assist.
‘‘We have seen this before during the pandemic, the recent Auckland floods, and the response to Cyclone Gabrielle, and may see it continue as borrowers battle the cost of living, higher interest rates and potentially rising unemployment.’’
This is the new social contract for banks, which got taxpayer support both in the global financial crisis and the Covid pandemic.
But what exactly does ‘‘whatever they could do to assist’’ actually mean?
Financial mentors, who help people get on top of their debts, have been scratching their heads over some banks not allowing people who are in arrears on their home loans to refix them when their fixed term comes an end.
That risks leaving them paying higher floating interest rates.
It’s a problem that could be affecting thousands. At the end of January, 18,400 home loans were in arrears, data from credit reporting company Centrix showed.
Budget mentor David Verry says in some cases arrears are small, and could be added to people’s homes loans.
Change is happening here. Westpac said it had now changed its policy to let people with arrears and in hardship refix their loans, so they don’t end up stuck on floating rates.
Bank hardship measures have been evolving, and banks have become more open about what they can do for people who have fallen into money trouble.
Since 2021, they have developed better hardship webpages (ANZ, Westpac, ASB, Bank of New Zealand, and Kiwibank).
And after the recent Auckland floods and Cyclone Gabrielle, banks added interest-free emergency overdrafts to the bank menu of hardship responses.
Standard items in the menu are referenced in lending laws, and are listed on each bank’s hardship webpages.
They include temporarily reducing, or suspending loan repayments, allowing people to make interest-only payments, and restructuring loans (for example, pushing the repayment end date out for a few years)
They can also help people get money out of KiwiSaver in order to clear arrears on home loans.
But banks are coy about mentioning some other options.
Banks can, for example, write off all, or part of a loan, as Bank of New Zealand (BNZ) admitted it sometimes did for victims of intimate partner violence.
Banks have also now shown they can temporarily tweak loan accounts to zero interest rates (or 0.01% in the ASB’s case), and could make use of that in some hardship cases, Verry says.
‘‘You’ve got a client with you for 30 years, possibly for life. If there’s one or two years where you don’t make any money out of them, isn’t that part of a long-term relationship?’’ Verry says.
‘‘I call it sharing the pain.’’
Banks have weaknesses in handling hardship claims, mentors say. This includes having closed so many branches, people have to apply online, which is hard for people with low literacy and financial skills.
Verry says bank hardship training for staff can be spotty, with some bankers much less skilled in it than others.
Once, a bank staffer suggested a person in hardship take on a personal loan to clear some arrears, which could have been more cheaply added to their home loan, as it eventually was.
‘‘I thought, ‘You’re joking me.’ That came back to training,’’ he says.
Financial mentors can help people get help to negotiate hardship deals with banks, but Verry says there are waiting periods of two to three weeks at some services.
CALL TO ACTION
Got a question for Rob Stock or an issue you want him to tackle? Contact him by going online to Neighbourly and typing the name of our newspaper into the search bar. Click our name and select Contact from the menu bar and ‘‘message our reporter’’ from the dropdown menu.