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FIPS Financial Institutions Performance Survey
Banks – Review of 2020
27.57%
decrease in NPAT
9.04% rise in
operating expenses
48.32%
escalation in
total provisions
0.46% dip in net
interest income
14 bps
decrease in net
interest margins
2.95%rise in
gross lending
275%increase in
impaired asset expense
61 bps
drop in average
funding costs
Current and up to date as at 5 p.m. Friday 19 February 2021
Contents
2 The Survey
4 A KPMG view from the editor
6 Industry overview
16 RBNZ Covid-19 timeline
18 Timeline of events
22 Provisioning: Volatility in a Covid-19 world
24 Sector performance
35 Focus on capital
36 Analysis of annual results
44 Major banks: Quarterly analysis
48 What will 2021 bring amid the fierce battle against
cyber crime?
50 Pandemic response: Building and maintaining the
trust
52 Focus on climate change
56 FMA: Agility, the key to managing Covid-19 and
changing regulations
58 NZIER: Improving business confidence supports
investment demand
60 NZBA: Delivering in a crisis
62 CoreLogic: Mortgage activity in 2020 – from slump to
recovery
66 Massey University: Banking industry review and
forecasts
72 Ownership and credit ratings
73 Descriptions of the credit rating grades
74 Definitions
75 Endnotes
77 KPMG’s Financial Services Team
78 Contact us
KPMG’s Financial Services team provides focused and practical audit, tax and advisory services to the insurance, retail banking, corporate and investment banking, and investment management sectors. Our professionals have an in-depth understanding of the key issues facing financial institutions. Our team is led by senior partners with a wealth of client experience and relationships with many of the market players, regulators and leading industry bodies.
2 | KPMG | FIPS 2020
The
Survey
The KPMG Financial TABLE 1: ENTITY MOVEMENTS1
Institutions Performance Who’s out Who’s in
Survey (FIPS) report of 2020 Banks: 26 —— Nil —— Nil *
represents the 34th year * There have been no changes to the bank participants this year.
that KPMG has provided
in-depth insights into There have been no changes to Massey University continues to
New Zealand’s banking sector. the bank participants this year. be a partner and key contributor to
However, in May 2020, the Reserve the compilation of this publication,
In this 34th edition we present Bank of New Zealand (RBNZ) assisting with the data collection,
industry commentary and registered Industrial and Commercial as well as drafting the banks’
analysis on the performance Bank of China (ICBC) to operate profit forecasting section of this
in New Zealand as a branch, in survey. We thank them for their
of the New Zealand registered addition to the subsidiary which continued contribution.
banks, together with a range has been operating in New Zealand
External contributors continue to
since November 2013. ICBC has a
of topical articles from other 31 December balance date, therefore
play a vital role in our publication,
key stakeholders such as providing insight on key issues
their first year of dual results will be
and developments that we might
industry experts, regulators included in next year’s survey.
not otherwise have. We would like
and our own business leaders. As with all previous FIPS, the to acknowledge the contributors
information used in compiling from CoreLogic, Financial Markets
our analysis is extracted from Authority (FMA), Massey University,
publicly available annual reports New Zealand Bankers’ Association
and disclosure statements for each (NZBA) and New Zealand Institute of
The survey covers registered bank organisation, with the exception of Economic Research (NZIER) for their
entities with balance dates between certain information which is provided exceptional contribution towards the
1 October 2019 and 30 September directly from the survey participants. compilation of this publication.
2020. As a result, registered banks
with the balance date of 31 December We wish to thank the survey We have supplemented their external
have had their 31 December 2019 participants for their valued thought leadership commentary with
financial results included in this year’s contribution, both for the additional some of KPMG’s own business line
survey as their most recent results. information provided and for the time thought leadership. We trust you find
This includes Bank of China, China made available to meet and discuss the content of this survey of interest.
Construction Bank, Citibank, Industrial the industry issues with us.
and Commercial Bank of China,
JPMorgan Chase Bank, Kookmin Bank,
Rabobank and The Hongkong and
Shanghai Banking Corporation.
In late 2020 we published and launched our FIPS Non-bank – Review of 2020 publication. This publication can be
accessed at the following link: https://home.kpmg/nz/en/home/insights/2020/12/fips-non-bank-2020.html
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
FIPS 2020 | KPMG | 3 © 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
4 | KPMG | FIPS 2020
A KPMG view
from the editor
The key themes of previous What an extraordinary year 2020
has been, the financial and health
FIPS Banks Reviews have implications of a global pandemic
focused around metrics on New Zealanders has been
like the three C’s, Capital, unprecedented. Upon the emergence
of Covid-19, no one knew exactly
Conduct and Culture along what the impact would be, with many
with loan book growth, forecasting exercises subsequently
margin movement, proven wrong. This can largely be
attributed to the Government’s support
impairments and regulation. and our efforts as a country, with
These historic themes have New Zealanders being adaptable and
resilient as we were asked to ‘go
been overshadowed in hard, go early’ in our response to the
the FIPS Banks – Review growing pandemic.
of 2020 publication by a Strong government support, widely
John Kensington new C, Covid-19. The global accessible to many businesses and
individuals, allowed the New Zealand
Partner – Audit pandemic has firstly brought
Head of Banking and Finance economy to withstand and then
KPMG
into focus our business quickly recover from the initial shock of
resilience and, after the initial the pandemic with the country falling
into a holding pattern of an almost
shock around liquidity, has ‘normal’ way of life. This has been
John has been with KPMG’s Financial
Services audit team for over 36 years,
then given us occasion to fuelled by ‘bounceback spending’ with
23 of these as a partner working with pause and reflect on business some expenditure that would have
a wide range of financial services otherwise occurred overseas. Our new
practices and how we normal, has changed the way we work
audit clients, specialising in banks and
finance companies. might conduct our business and do business. Increasingly we are
going forward. seeing trends that were a necessity
John has a wealth of experience in during level four lockdown becoming
auditing and accounting for banking commonplace in the workplace, with
products and services including The historic dominant lens of many businesses adopting work-from-
treasury, retail offerings, corporate home friendly business models. The
loans and loan provisioning. He is
profit is being replaced with
challenges for many, will be allowing
currently KPMG’s Head of Banking a more balanced approach, for this new way of working without
and Finance and editor of this involving people, customers detrimentally impacting culture and
publication. John is also Deputy ensuring an innovative approach is
Chairman of the New Zealand and staff and the wider taken to ensuring workforces receive
Auditing and Assurance Standards community together with an sufficient technological support
Board (NZAuASB) and serves as a increasing focus on diversity, while maintaining good security
board member of the XRB. John is measures and maintaining and
also a fellow of CA ANZ, a member climate and cyber issues. developing culture.
of the Institute of Directors and a
Trustee of Breast Cancer Cure.
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FIPS 2020 | KPMG | 5
The banking sector played a pivotal While New Zealand has weathered Climate-related reporting will be
role in their responsiveness to the the storm well so far, the same cannot another area of change for banks,
different remedial monetary policies be said for many other countries, as the Government announced
rolled out by the Treasury, Ministry of some of whom are facing secondary mandatory climate-related financial
Business, Innovation and Employment lockdowns; or stricter requirements to reporting for banks and other financial
(MBIE) and the Reserve Bank of curb the spread of the pandemic. This institutions in September. The major
New Zealand (RBNZ). Declining poses real concern for the banking Australian owned banks have an
interest rates have been driving the sector going forward, both through advantage in their opportunity to
prosperity of many domestic markets the economic effects of lockdowns leverage the work performed over
through increased spending – the imposed by our trading partners, but climate-related financial reporting
housing market being one of the also what another big lockdown in already undertaken by their
most notable. Whether this increased New Zealand would look like were Australian counterparts.
domestic spending is sustainable, it to occur should the vaccination
Other emerging threats include cyber
or whether it will be enough to save programme and border restrictions
crime, the need to exhibit diversity and
many businesses in the aviation and fail to keep the virus from re-emerging
inclusion and the continued pressure
tourism related industries struck by significantly within the community.
on conduct and culture aspects.
the freeze on international travel will
While the banking sector plays
remain to be seen. The lessons learnt from the Covid-19
a pivotal role in aiding economic
pandemic, and through our on-
The combined efforts of the recovery and fostering change to
going recovery from it, may act as
Government, Inland Revenue (IRD), the way in which we do business
a catalyst for further change. It may
MBIE, RBNZ and the banks have seen in New Zealand, it is important that
now be a good time to bring forward
the ‘team of five million’ navigate the banks continue preparing for other
change which may have been in the
first phase of Covid-19 far better than changes to come. The sector, like
pipeline over the last ten years, as we
anyone forecast. the economy, has been resilient and
individually, as a sector, and a nation
rebounded well given the challenges it
The FIPS Banks – Review of 2020 has look to reset.
has faced and has built goodwill with
shown that the banking sector has
its stakeholders. Once a sector that
taken a hit, but remains in a strong
was criticised by many, this survey
position. However, a salutary caution,
would not be complete without
the results included within the survey
acknowledging the roles that banks
are a mix of December 2019, and
have played in ‘steadying the ship and
March, June and September 2020
holding it on course’ throughout the
year-ends, with the earlier balance
pandemic to date.
dates being largely unaffected by
Covid-19 and even the later balance Regulatory change remained a topic of
date entities only having a maximum discussion with survey participants.
of six months of impact. It is likely the
While the RBNZ has pushed out the
2021 survey may further highlight the
deadline for increases in required level
impact of Covid-19 on the sector.
of capital to July 2022, other aspects
of the 2019 reforms remain due for
implementation by 1 July 2021.
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
6 | KPMG | FIPS 2020
Industry overview
No review of 2020 can start The Government’s ‘go hard, go When we went into lockdown, we did
early’ approach to Covid-19 meant not know how long it would last for
without using the words that New Zealand’s borders were and what the long-term impact would
unique, unprecedented, closed in March 2020 and a national be. This was symptomatic of the
unexpected, and lockdown was implemented. Only uncertainty that we faced and continue
‘essential services’ were permitted to face in many areas.
unpredictable. Along with to operate and the vast majority of
The Government quickly implemented
the word pivot, these seem us remained at home, allowed out
relief programmes to support
to be the most overused only for exercise, grocery shopping or
businesses and individuals, but in spite
medical assistance. Those who could
words of the last nine to work from home were encouraged
of this a lot of uncertainty remained.
What must be said about the various
twelve months. Fortunately to do so, while businesses reliant on
government relief packages is that
face to face contact had to shut down.
for New Zealand, ‘better Banks and other financial institutions
they were implemented very quickly,
than expected’ has also had were relatively easy to both apply for
were deemed as ‘essential’ which
and receive, and were sufficiently
heavy usage. meant that some operated with a
generous to alleviate a lot of the
small number of staff in the office
financial and emotional pressure felt by
The emergence, spread of with the vast majority transitioning
people providing a much needed buffer
to working from home, disaster
and response to Covid-19 has recovery/business continuity sites or a
and some certainty in very uncertain
times. These packages provided a
certainly shaped 2020. combination thereof.
much needed level of assistance
The strict lockdown rules were that has potentially masked the true
adhered to and we quickly saw the impact of the lockdowns and allowed
positive impact on the number of the economy to recover and indeed
As with the non-bank entities we Covid-19 cases. After four weeks rebound to close to pre-pandemic
spoke with and reported on at the end of a ‘hard’ lockdown, the emphasis levels subsequently. These measures
of last year2, conversations with the was shifted from ‘essential’ to ‘safe’. have also undoubtedly saved jobs and
CEOs of New Zealand banks were Businesses who could operate helped the country through the first
also dominated by the impacts of under the strict hygiene and physical chapter of Covid-19.
Covid-19 on their staff, customers and distancing rules started to open back
Initial forecasts were that this
the country as a whole. Compared up and people could venture further
economic crisis caused by Covid-19
to the prior years, the survey themes afield. After three weeks, the threat
would be far worse than the GFC.
were much less specific to the of Covid-19 in the community was
Businesses and individuals alike
banking sector and more applicable to deemed low enough for a progressive
looked closely at their spending and
New Zealand as a whole. move down the Alert Level system4
what could be cut. New Zealanders as
to Level 1 where New Zealand has
As documented in the Quarterly FIPS a whole are not good at saving money5
remained since except for a period in
publications of 20203, the banks were and there was initially concern about
September/October 2020.
fast to act and worked collaboratively our financial resilience.
with each other, the Government and The seven weeks of lockdown had a
However, as the lockdown measures
the Reserve Bank of New Zealand profound impact on our economy, the
had the effect of reducing virus
(RBNZ) to support the economy. way we work and do business, and our
transmission and therefore instances
collective lifestyle choices.
The financial system has to date of the virus, New Zealand was in a
proved to be strong and the banks fortunate position to be able to lift the
Economy restrictions on businesses and we
resilient. While initial fears were
that an economic crisis as a result Starting with the economy, it has been started spending money! After being
of the pandemic and accompanying a roller coaster ride. At first, there locked down, New Zealanders really
lockdowns would be far worse than were dire predictions of a depression quickly bounced back into as normal a
the Global Financial Crisis (GFC) of from the bank economists, the RBNZ way of life as possible.
2007–8, it has not played out that way and the Treasury. The economic
– in New Zealand at least so far. indicators and measures were all
significantly down for the quarter from
March to June 2020.
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FIPS 2020 | KPMG | 7
Businesses were constantly Strong demand coupled with border An increase in spending on sporting
reforecasting what the remainder of closures and restrictions around the and recreational goods together with
2020 and 2021 might look like and world have led to challenges on the furniture, hardware and electrical
have been constantly getting it wrong. supply chain. Many retailers are unable goods indicated that people were
Pent-up demand saw a spending surge to keep the shelves fully stocked and preparing for a domestic summer
once the lockdown restrictions were many items are already pre-sold by the break and purchasing outdoor
lifted. Retailers initially advertised time that they arrive in New Zealand. furniture, camping and sporting
discounts and incentives to encourage This is a far cry from the concerns equipment7. December is a key retail
people to spend but it soon became around overstocking seen in June. month and 2020 spending was also up
apparent that these were not needed when compared to December 2019.
New Zealand has been extremely
and actually replenishing stock sold
in the bounceback started to become fortunate to revert to an almost However, this was not such a positive
an issue. ‘normal’ way of life that it is story for those businesses who rely on
sometimes hard to fathom the overseas tourists. Spending on hotels,
enormous impact that the pandemic motels and other accommodation was
Businesses were constantly is continuing to have in the rest of the down 32% compared to December
reforecasting what the remainder world. We saw a sharp reminder at 20198 demonstrating the Kiwi
of 2020 and 2021 might look like the end of August when a community preference for family owned baches
and have been constantly getting case of Covid-19 emerged in Auckland and camping and the fact that a portion
it wrong. resulting in a step back up the Alert of our hospitality and accommodation
Levels to Level 3 in Auckland and capacity requires foreign tourists to
Level 2 for the rest of the country. fill it.
With the borders closed, and the In early January, a further scare
threatened our freedom when a However, the real area of concern
lockdown in place, New Zealanders
Managed Isolation/Quarantine facility is whether this level of spending is
across all socio-economic levels
were impacted. Those who would experienced a series of issues around able to be sustained. While the high
normally spend considerable time people released from quarantine. house prices and low interest rates
overseas found themselves at home All of this was a stark reminder for are contributing to confidence among
with surplus cash which they have us that our circumstances could homeowners, there are a lot of people
generally spent on vehicles and home change incredibly quickly. This was for whom the ending of government
improvements. Those at the lower further demonstrated by the speed at assistance will have had a huge
end of the scale, either on benefits or which Auckland was moved to Alert impact. For some industries such
lower wages, were in much the same Level 3 and the rest of the country as tourism, aviation and some retail
position as before or in some cases to Alert Level 2 following community and hospitality businesses there is
slightly better off due to increases in cases reported on 14 February. The simply not enough domestic spending
government assistance. subsequent move down the Alert available to make up for the hole left by
Levels to Level 2 for Auckland and having no international visitors.
All of us were forced to pause and
focus on how we spent money, Level 1 for the rest of the country The Prime Minister has indicated
partly because we were restricted in happened on 18 February was a relief that the borders will remain closed
what we could do during lockdown for many businesses. until 2022. Even with potential ‘travel
and partly because we were not as bubbles’ with Australia and the Pacific
certain of our income. This led to many Islands (that have already had multiple
becoming budget conscious to a level New Zealand has been extremely
false starts), this will have a possibly
they had not previously. fortunate to revert to an almost
irreparable impact on businesses
‘normal’ way of life.
The quarter ended June 2020 saw the within those industries mentioned
biggest drop in spending in 25 years above as well as international
due to the lockdown period in March, education and those sectors requiring
When restrictions eased for Auckland seasonal workers such as agriculture
April and May prompting very gloomy to join the rest of the country in Level 1
economic outlooks. However, there and horticulture.
at the beginning of October spending
was a surprising rebound in the once again increased significantly.
quarter ended September 2020 with Spending in restaurants, cafes, and
the strongest September quarter rise
takeaways was up $79 million (8.8%)
since 19956.
when compared to October 2019.
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8 | KPMG | FIPS 2020
RETAIL INTEREST RATES ON $BILLIONS %
1 LENDING VS. GROSS LOANS 500 10.0
AND ADVANCES
490 9.0
480 8.0
470 7.0
460 6.0
GROSS LOANS AND ADVANCES (LHS)
BUSINESS LENDING RETAIL RATE (RHS) 450 5.0
HOUSING LENDING RETAIL RATE (RHS)
440 4.0
SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS JAN 19 JUL 19 JAN 20 JUL 20 NOV 20
RETAIL INTEREST RATES ON $BILLIONS %
2 TERM DEPOSITS VS. TERM 200 4.0
DEPOSIT BALANCE
195 3.5
190 3.0
185 2.5
180 2.0
175 1.5
170 1.0
TERM DEPOSIT BALANCES (LHS)
165 0.5
TERM DEPOSIT RETAIL RATE (RHS)
160 0.0
SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS JAN 19 JUL 19 JAN 20 JUL 20 NOV 20
RETAIL INTEREST RATES ON %
3 TERM DEPOSITS VS. OCR 10.0
9.0
8.0
7.0
6.0
5.0
4.0
TERM DEPOSIT RETAIL RATE
3.0
BUSINESS LENDING RETAIL RATE
2.0
HOUSING LENDING RETAIL RATE
1.0
OCR
0.0
SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS JAN 19 JUL 19 JAN 20 JUL 20 NOV 20
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.FIPS 2020 | KPMG | 9
BANK SECTOR LENDING $BILLIONS
4
450
11.1B 8.7B
400 11.4B
11.3B
350 10.6B 109.3B
115.4B
108.3B
300 103.1B
97.2B
250
200
150 292.6B
256.0B 273.6B
HOUSING 228.9B 241.6B
100
BUSINESS
50
PERSONAL
0
SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS DEC 16 DEC 17 DEC 18 DEC 19 NOV 20
REGISTERED BANKS: SECTORAL
5 ANALYSIS OF CREDIT EXPOSURES
AS AT 31 DECEMBER 2020
AGRICULTURE, FORESTRY, FISHING AND
MINING 14% (2019: 14%)
MANUFACTURING 2% (2019: 3%)
UTILITIES 1% (2019: 2%)
CONSTRUCTION 1% (2019: 2%)
OTHER COMMERCIAL LENDING 31%
(2019: 31%)
FINANCE, INVESTMENT AND
INSURANCE 2% (2019: 2%)
GOVERNMENT AND PUBLIC
AUTHORITIES 3% (2019: 3%)
MORTGAGES 43% (2019: 41%)
PERSONAL LOANS 2% (2019: 2%)
SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS
MAJOR BANKS: COST OF FUNDS %
6 VS. AVERAGE OVERNIGHT 3.5
INTERBANK CASH RATE
3.0
2.5
ANZ 2.0
ASB
1.5
BNZ
KIWIBANK 1.0
WESTPAC
0.5
AVERAGE OVERNIGHT INTERBANK
CASH RATE
0.0
SOURCE: AVERAGE OVERNIGHT INTERBANK CASH RATE: MAR 17 SEP 17 MAR 18 SEP 18 MAR 19 SEP 19 MAR 20 SEP 20
RESERVE BANK OF NEW ZEALAND STATISTICS
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.10 | KPMG | FIPS 2020
•
Businesses are also suffering from ANZ and ASB have already acted and
the inability to hire specialist and are limiting their exposure to high
experienced staff from overseas. 1 SEE FIGURE 1 – PAGE 8
LVR loans ahead of the proposed
This employment situation is offset RBNZ rules, requiring investors
slightly by the number of New Zealand to have a deposit of 30%9. ANZ
•
residents and citizens continuing to subsequently raised its requirement to
return home and those not leaving. a 40% deposit10.
Businesses reliant on seasonal migrant
workers are struggling. In addition to 2 SEE FIGURE 2 – PAGE 8 New Zealanders coming home are
challenges with getting the right staff, also fuelling the hot housing market
retail businesses are challenged by the with reports of houses being sold
global border restrictions which have sight unseen. The extent to whether
As we discuss below, the lockdowns
resulted in fewer cargo ships unloading or not this is actually happening is
saw a huge increase in the number
in New Zealand which also means debatable, but the anecdotes could
of people working from home
fewer cargo ships are being loaded up be contributing to a sense of missing
necessitating people to consider
to take New Zealand goods back to the out therefore encouraging people
their living arrangements and the
rest of the world. to purchase11. While the mortgage
practicality of continuing with this
interest rates are still heading lower,
What does this all mean for our banks? situation longer term. Spending more
2.29% is currently the lowest one-year
While we are getting better at dealing time at home has encouraged some
fixed rate being offered. This compares
with uncertainly, most businesses people to invest more in their own
to an average mortgage interest rate of
are playing it safe and banks are properties, finally getting around to
3.44% in January 202012.
seeing little or no growth in their the home improvements that they
business loan books. However, the have been considering for a while. The predictions of negative interest
mortgage books are growing in this For some, having a better space to rates that dominated discussions
hot housing market. Again, this is in work has driven them to purchase a during the second and third quarters
direct contrast to the dire predictions bigger property. Working from home of 2020 have now changed. While the
seen last March and April. While the more means commuting less often RBNZ still expects the banks to be
lockdown periods naturally resulted which opens up locations that are ready to deal with negative interest
in no new loans being written, June further away from city centre offices. rates, it seems that this will not be a
•
through to October showed steady reality that they will have to implement
growth before a significant increase just yet.
in November. Although the December
data is not yet available from the 15 SEE FIGURE 15 – PAGE 29
The way we work
RBNZ, the banks that we spoke to
As with the non-bank institutions, one
were all expecting another bumper
of the biggest impacts of 2020 for
•
month with the bulk of completions
the banks was the move to working
due before Christmas.
•
from home. The major banks have
16 SEE FIGURE 16 – PAGE 29 always had the ability for some staff
to work remotely and encouraged
14 SEE FIGURE 14 – PAGE 29 flexible working hours, but 2020 saw
a profound shift. There was a mad
Lending to investors has increased scramble at the start of lockdown to
by 64% from November 2019 to ensure everyone had the right hardware
While lending has increased to first
November 2020. The RBNZ removed and access to the banks’ secure
time buyers and investors, by far
the loan-to-value ratio (LVR) restrictions networks remotely. This was swiftly
the bulk of the new lending is to
as part of the Covid-19 related dealt with. Staff who could easily work
people who already own property.
measures when it looked like house from home transitioned well and some
This has been confirmed through our
prices were likely to drop significantly. frontline staff traditionally involved in
conversations with the banks who
However, the opposite has occurred sales were re-allocated to assist with
have commented on the increased
affordability created by the low interest and the RBNZ has reinstated the LVR the overwhelming volume of calls that
rates as well as those looking for restrictions with effect from March were being received by customers
better yields than other traditional 2021 with tighter restrictions from worried about the impact on their
investments (see figures 1 and 2). May 2021. financial situation.
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Due to government relief packages We have the luxury of being able While initially seen as primarily a
and the relatively short duration of to decide what works best for our diversity and inclusion offering, flexible
our ‘hard’ lockdown period, these businesses, our customers and working has become mainstream over
customer enquiries returned to near ourselves and apply it accordingly. the past 12 months. Organisations
normal levels quite quickly. The banks that were reluctant to introduce it have
had to react fast to shutting their now seen that it is possible for large
branches and diverting their frontline We are fortunate in New Zealand parts of their workforce to work more
staff to assist customers through to be able to choose whether we flexibly, including remotely, and that
other channels. return to the office or not. it is a critical part of their employee
value proposition. Spending more
The major banks all reported a
time at home resulted in many people
significant increase in the uptake of Pre-Covid-19, the banks’ focus reassessing their lifestyle and what
digital banking, especially in the older on flexible working was usually they found important. For some, the
demographic, who had previously highlighted as part of their diversity time saved through not commuting
been reluctant. and inclusion offerings. To ensure that was increased time with their family or
it was seen as a universal benefit, spending time on their hobby or sport
and not just one for working mums, and people are keen to retain these
The major banks all reported a
they promoted it as a normal way of benefits now we are largely ‘back
significant increase in the uptake of
working, but it had to be seen to work to normal’.
digital banking.
for the business, your team as well
as yourself. While some people may have felt that
flexible working was largely reserved
While some banks we spoke to had As businesses have got back to for working mums, many dads are
staff that remained in the office all the ‘normal’ the major banks have all now keen to retain the ability to be
way through, others had the majority reported an increase in the number of around more for their children and
of their workforce working remotely people wanting to work remotely at ‘share the care’.
until long after the government least part of the week meaning that
restrictions had been lifted. the identification of ‘the sweet spot’ With video calls ubiquitous during the
is critical. With this increase in people lockdown periods, we have all seen
This was partly due to the design of way more of our colleagues’ homes
working flexibly, some banks have now
their workspaces making it hard to and met more family members,
prioritised these elements to ensure
implement the physical distancing including pets, than we expected.
that the customer needs come first
required under Alert Level 2, and While for some people, this has been a
and service is not compromised.
partly due to them having already welcome way of getting to know team
semi-mobile workforces and disaster The benefits of working from home members there are always people who
recovery/business continuity centres have been discussed at length over feel uncomfortable sharing for one
that they could utilise. It was also the past nine months including in the reason or another. The importance of
heavily influenced by the lead from Non-banks FIPS – Review of 2020 having empathy and respect for each
Australian parent companies who published late last year13. other has never been so important.
remained in a more restrictive
Companies that have felt the most Another aspect to video calls is that
environment and the desire of their
comfortable having staff work meetings can be much more efficient
staff to continue working from home.
remotely are those that have invested when conducted virtually through
Also, as banking was categorised as an
in technology that allows seamless Microsoft Teams, Zoom or similar.
essential service the banks could not
access to the organisation’s systems However, the flip side to this is the
afford for their entire workforces to be
and who are able to measure the potential for a detrimental effect on
compromised by an outbreak affecting
productivity of their staff. In 2019 there company culture and interaction. This
their premises or risk becoming a
was a lot of focus on organisations is where the ‘hybrid’ model comes in;
‘super-spreader’ environment.
looking into the four-day week. people can focus on tasks at home,
We are fortunate in New Zealand to Following the events of 2020, it seems but participate in events involving
be able to choose whether we return that the ‘hybrid’ working week or 3-2-2 team-building, culture and innovation
to the office or not. In many parts of structure of three days in the office, when they are brought together in
the world people have been working two days at home and two days off is the office.
remotely since March 2020 with no gaining popularity14.
clear return to the office in sight.
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.12 | KPMG | FIPS 2020
The two messages we heard most Like many other businesses, this Cyber security
clearly were that people do not increase in remote working has
There were initially challenges for
appreciate coming into the office to do seen the banks review their physical
organisations, including the banks,
something they can just as easily do footprint as a result of more people
to ensure that all their employees
from home and culture cannot be built wanting to work remotely. 2020 saw a
could access their virtual networks
or maintained as easily through remote number of branch closures reflecting
as business continuity plans usually
working tools. the reduction in foot traffic from
only envisaged a maximum of a third
the Covid-19 related lockdowns and
One team in a major bank were so of the workforce needing remote
associated increase in the number of
motivated to remain working from access. Along with expanding the
people using non-face to face banking
home for the majority of the time available bandwidth, security issues
options. Some banks have already
that they worked out how much were a key consideration. With more
decreased the amount of office space
money they each saved by not people accessing servers remotely,
that they occupy and this is likely
going into the office every day. They there is a greater risk of cyber security
to continue as leases come up for
calculated that they would save an issues, as well as the need to keep
renewal. One bank we spoke to has
average of $9,000 p.a. through less customer data secure when working
invested in technology which has
commuting, not buying lunches or outside of the normal environment.
management information dashboards
coffees and needing fewer ‘office Whilst internet connectivity is
including occupancy rates of buildings,
clothes’; all of these things add up to a sufficient for many work tasks, there
number of virtual logons and types
significant amount. are certain transactions that require
of transactions.
access to secure systems. One bank
The main concern for the banks,
we spoke with advised us that while
like many other businesses, is that
This increase in remote working has their staff successfully transitioned to
having people working remotely a
seen the banks review their physical working from home for the most part
lot of the time will lead to a loss of
footprint. it was quickly recognised that large
organisational culture and there is a
transactions were best completed in
focus on how to replicate some of the
the secure environment of the office
connection points that naturally occur
Utilising this type of data will make (see the article, ‘What will 2021 bring
when people are physically in the
it easier to make decisions about amid the fierce battle against cyber
same space in a virtual environment.
how best to invest in creating crime?’ on page 48).
While some leaders worry that if
employees never actually come into the environment most conducive Scammers did not take long before
the office that they will become to employee engagement and they started to exploit the uncertainty
disconnected from their organisation customer satisfaction. and confusion created by the
and find it easier to move to another Amid the branch closures of last year, pandemic and the banks were vocal
one, others are confident that the New Zealand Bankers’ Association in their advice to the public about
providing the flexible working benefits (NZBA) pilot for Banking Hubs started protecting themselves17.
desired by their employees will result in November after being delayed due
in greater loyalty. to the Covid-19 lockdowns. These The way we do business
For all the people who enjoy working Banking Hubs provide basic banking Other words that increased in
remotely and have realised that they services with staff from all five major usage over the course of 2020
do not need to be tied to a particular banks and are located in Twizel, were ‘contactless’ and ‘click and
office location so that they can move Stoke, Martinborough and Opunake15. collect’. These were critical to many
further out of the city or to another The 12-month pilot will give time businesses being able to operate
part of New Zealand, there are to assess whether these Banking under Level 3 restrictions, and we saw
others who have found that the lack Hubs are sufficient for the more a lot of retailers adapt their business
of personal interaction has reduced rural communities of New Zealand models to service their customers
the enjoyment that they had from to feel supported16. (See the article, from a distance. When Auckland re-
spending time at work with customers ‘NZBA: Delivering in a crisis’ on entered a Level 3 lockdown at the end
and colleagues. It is certainly not a page 60.) of August 2020, there were a lot more
‘one size fits all’ situation and working businesses that remained open having
in a hybrid environment is going to developed a way to continue under
take some adjustment from both the restrictions including coffee shops,
employees and employers. hardware stores and car yards.
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.FIPS 2020 | KPMG | 13
For the banks, this sudden move to For their customers, relief packages (See the article on ‘Pandemic
digital or online platforms saw an were quickly designed and response: Building and maintaining
increase in the numbers of customers implemented, both as a response trust’ on page 50.) Unfortunately, it
using their digital channels for remote to government directives and will only take one small incident or
banking and also increased demand independently. When the first problem for all the goodwill that has
for face to face meetings to be held lockdown was implemented, the been built up to be lost.
virtually. Customers were increasingly uncertainty led to many people
comfortable discussing their mortgage contacting their bank, unsure of how Innovation
or investment needs from their own their financial situation was going to One by-product of the Covid-19
home with an advisor based elsewhere unfold. The Government’s mortgage pandemic is that we have all seen
using Teams or Zoom. The banks deferral programme meant that that technology changes can be
contributed to helping their customers people could take a ‘holiday’ from implemented quickly when they need
operate within government restrictions their mortgage payments for up to to be. Organisations that planned
by removing the fees and increasing six months without it being classed to roll out Microsoft Teams over a
the transaction limit using Paywave, as a default and impacting their credit 12-month period managed to cut this
enabling businesses to take rating. While this has been a lifeline for down to a matter of weeks if not days
contactless payments providing both some, many opted against it once they and we quickly became proficient
businesses and customers with a better understood the implications to
more hygienic experience. This was at holding virtual meetings. Zoom
their loan – that it would still accrue became ubiquitous both for work
initially for a short term and the banks interest and this would be added to
were praised for their quick response related meetings and webinars as well
the loan therefore extending the term. as for lockdown quizzes.
to support smaller businesses who As with the non-bank institutions,
potentially found the fees prohibitive. the banks reported a much smaller 2020 has shown us that things do not
The popularity of Paywave and the proportion of customers still on some have to be done the way that they
increasing expectation from customers sort of relief measures than expected. have always been done and we do
that they can pay using it has led to the have the ability to move fast when we
retail industry body lobbying the banks need to. The banks are keen to harness
to decrease the fees associated with It is crucial now that the desire this speed and agility while reviewing
it and for the Government to indicate to do the right thing for their their product portfolios, channels and
that they are looking to regulate more customers does result in the right speed to market.
in this area18. outcome for the customer.
Collective lifestyle choices
Customer centricity
The impact of Covid-19 has caused
The banks were among the most
The health and economic impacts of countries to close their borders and
trusted brands in New Zealand pre-
Covid-19 saw an immediate focus on focus much more domestically than
Covid19 and they certainly acted with
both the health and financial wellbeing they have in the recent past. Here
empathy and understanding through
of people. The banks responded in New Zealand, it has highlighted
the initial crisis period playing a crucial
quickly and empathetically to keep our reliance on skilled workers from
role in keeping the economy going and
both their staff and customers safe overseas across the whole economy,
supporting New Zealanders. Banks are
and to assist them where possible. from seasonal agricultural workers to
often an easy target to criticise but they
experienced IT workers. There are also
have certainly proved themselves to be
many skilled people who have had to
The health and economic impacts a critical element of the New Zealand
retrain or reset their careers as they
of Covid-19 saw an immediate focus economy, navigating the first wave
found themselves in a sector that was
on both the health and financial of Covid-19 together with the
severely impacted. Here at KPMG,
wellbeing of people. Government, the Treasury, MBIE, IRD
we have recently hired two pilots
and the RBNZ, and the banks deserve
for example.
some recognition for that. It is crucial
Many of the banks committed to their now that the desire to do the right We are fortunate here in New Zealand
staffing levels early on, informing them thing for their customers does result that we can currently travel freely
that there would be no redundancies in the right outcome for the customer, around the country and enjoy holidays
and that they would be paid regardless understanding that sometimes the albeit of the domestic variety.
of whether their situation meant they right answer is not necessarily what
were working their usual hours or not. the customer is asking for.
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.14 | KPMG | FIPS 2020
Tourism operators and accommodation The response of the New Zealand
providers are having to adapt to banks will be particularly important,
domestic rather than international given their pivotal role in the economy
tourist expectations. as well as their exposure of lending
portfolios to key sectors such as
We are one of the few countries in
agriculture, property, etc. which
the world to still be holding sporting
have both physical and transition risk
matches with live audiences, sporting
exposure and opportunity.
events drawing spectators such as the
36th America’s Cup as well as those Banks will need to consider the
with a high number of participants implications for them, as both good
such as marathons, music festivals and corporate citizens and preparers of
community events. TCFD-aligned reporting as well as
users of information disclosures to
The latest scare with community
inform that as well as their lending and
cases in January 2021 has
investment decision-making20. They
demonstrated the need for us to not
have also committed to assisting their
get too complacent. It is just too easy
customers with understanding their
to forget that the world is in the midst
own climate changes responsibilities21.
of a pandemic and that we have many
(See the article, ‘Focus on climate
freedoms that other countries can
change’ on page 52.)
currently only dream of.
Climate change Where to next?
It looks like the borders will remain
The lockdown period starkly
closed for much of 202122 (if not
demonstrated the impact that we
beyond), the Government’s relief
are having on our environment and
packages are ending, and the supply
the improvement that is possible
chains are still severely impacted.
with fewer cars on the roads, planes
While we have definitely not seen
in the air and factories working at
the dire predictions at the outset of
full capacity.
the pandemic eventuate, we are not
necessarily out of the woods yet.
The lockdown period starkly The recent fall in the unemployment
demonstrated the impact that we rate23 once again demonstrates that
are having on our environment. ‘things are not as bad as expected’
but we could still see some negative
impacts coming though in the next
Climate change and associated few months. The bounceback has
issues were brought to the forefront been strong, but is not necessarily
in 2020 and look set to step up sustainable over the long-term as
in the foreseeable future. From people are not going to continue to
the RBNZ roundtable discussion buy a new car or renovate their house
featuring Mark Carney to Prime each year.
Minister Jacinda Ardern declaring We will need to be resilient, much
a ‘climate emergency’, there is no as we have been to date and will
abdicating responsibility. need to be prepared to apply that
In September 2020, the Government Kiwi ‘number 8 wire’ approach to the
announced its policy to introduce changes we face. We are fortunate
mandatory climate-related financial that we have a financial sector that
risk reporting for financial market remains strong and is in a position to
participants, based on the Task help us through the next phase of the
Force on Climate-related Financial pandemic, whatever that may bring.
Disclosures (TCFD) framework.
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.FIPS 2020 | KPMG | 15 © 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
16 | KPMG | FIPS 2020
RBNZ Covid-19 timeline 24
9 Mar 2020 The RBNZ warns businesses to be prepared for potential disruptions from Covid-19 and consider their
responses.
16 Mar 2020 Start date of increased capital requirements delayed until 1 July 2021 to increase lending supply.
The Official Cash Rate reduced to 0.25% for the next 12 months to provide monetary stimulus in
response to Covid-19.
18 Mar 2020 External facing work on multiple regulatory initiatives is delayed for at least six months, and the
outsourcing policy transition period is extended by 12 months.
19 Mar 2020 Confirmation issued that RBNZ has adequate cash to feed into the system should Covid-19 impact
regular cash operations.
20 Mar 2020 Term Auction Facility (TAF) is introduced, giving banks access to collateralised 12-month term
funding, to assist with the smooth function of markets. Other measures include funding in FX swap
markets, the USD swap line being re-established, assisting to keep the New Zealand Government
Bond market liquid and removing the allocated credit tiers for Exchange Settlement Account System
(ESAS) accounts.
23 Mar 2020 The RBNZ announces intention to purchase up to $30 billion of New Zealand Government Bonds on the
secondary market over a 12-month period through the Large Scale Asset Programme (LSAP).
24 Mar 2020 Financial support package announcement features a six-month principal and interest payment holiday to
help homeowners and businesses affected economically by the impacts of Covid-19. At the same time
capital rules are adjusted, with core funding ratios decreasing from 75% to 50%.
The Government and banks also implement a $6.25 billion Business Finance Guarantee Scheme for
Small and Medium Medium-sized Enterprises (SMEs) aimed at protecting jobs and supporting the
economy through uncertainty.
25 Mar 2020 Financial service functions are deemed essential under Covid-19 Alert Level 4.
30 Mar 2020 Weekly Open Market Operation (OMO) are deployed to provide liquidity for Corporate and Asset-
Backed securities, providing another channel for banks to continue corporate funding.
2 Apr 2020 Term Lending Facility (TLF) is introduced to support the Business Finance Guarantee Scheme and
promote business lending, by offering funding to banks with low interest rates for up to three years.
The payment of dividends and the redemption of non-CET1 capital instruments is stopped until further
notice.
7 Apr 2020 LSAP is expanded to include $3 billion of the Local Government Funding Agency (LGFA) debt,
increasing the programme total to $33 billion over 12 months.
19 Apr 2020 Expectations for banks regarding responsibility and good conduct in a time of uncertainty are outlined.
21 Apr 2020 Intention to remove loan-to-value ratio (LVR) restrictions announced to ensure borrowers and lenders
were not unduly impacted by the mortgage deferral scheme.
24 Apr 2020 Guidance issued for Financial Services providers for operating under Covid-19 Alert Level 3.
30 Apr 2020 LVR restrictions are removed for 12 months.
4 May 2020 Operational details of TLF are announced, offering three-year fixed rate lending with the rate equivalent
to the OCR at 0.25% available until 29 October 2020. The low interest rates are expected to be passed
onto borrowers.
12 May 2020 Covid-19 Alert Level 2 guidance issued.
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.FIPS 2020 | KPMG | 17
13 May 2020 LSAP further expanded to a potential $60 billion with the introduction of New Zealand Government
Inflation Indexed Bonds, which is aimed at continuing the reduction of borrowing costs.
24 Jun 2020 Monetary Policy Committee (MPC) agrees to continue with LSAP for the foreseeable future.
14 Jul 2020 Results of the Credit Conditions Survey for June 2020 are released, capturing changes post-lockdown
from the March 2020 survey.
12 Aug 2020 LSAP is expanded to $100 billion, to further lower retail interest rates and achieve its remit. Additional
monetary instruments will also remain in active preparation to be deployed if necessary.
17 Aug 2020 The Mortgage Deferral Scheme is extended to 31 March from 27 September, allowing banks to
continue to help any customers in need without impacting their credit scores.
20 Aug 2020 The TLF offer is extended until 1 February 2021, with the term increased from three to five years.
The RBNZ’s balance sheet has doubled since January to approximately $60 billion, as a result of its
support to the economy in response to Covid-19, and is likely to remain high for the foreseeable future.
24 Aug 2020 Banks and Non-Bank Deposit Takers (NBDTs) are granted an exception to operate under Covid-19 Alert
Level 3.
17 Sep 2020 Outcomes from a Covid-19 stress test of New Zealand banks in March is released and concludes that
banks could successfully draw on their existing capital buffers and continue lending to support lending
in the economy during a severe economic downturn.
23 Sep 2020 MPC agrees to continue with LSAP up to $100 billion.
11 Nov 2020 Announcement of a Funding for Lending Programme (FLP) to commence in December to reduce
banks’ funding costs and lower interest rates, with the intention of assisting in meeting remits.
Announcement that required increases in bank capital have been further delayed until 2022. This is to
allow banks continued capital headroom to respond to the economic impact of Covid-19 and support
the financial recovery. Dividend restrictions to remain until at least 31 March 2021.
25 Nov 2020 Intention to reinstate LVR restrictions is signalled.
8 Dec 2020 Requests for views on a proposal to reinstate LVR restrictions on high-risk lending with effect from
March 2021.
9 Feb 2021 The RBNZ announces LVR restrictions to be re-instated from 1 March 2021. Banks will be restricted to
a maximum of 20% of new lending to owner-occupiers at LVRs of over 80% and 5% of new lending to
investors at LVRs over 70%.
From 1 May 2021, the restriction for new lending to investors will increase to a maximum of 5% of new
lending at LVRs over 60%.
© 2021 KPMG, a New Zealand Partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.18 | KPMG | FIPS 2020
Timeline of events 24
Note that items regarding the RBNZ’s Covid-19 response have been excluded from this timeline, and instead collated
in a single timeline on page 16. Events in blue relate to Covid announcements from the New Zealand Government.
• Jan. 2020 • 9th • 7th
Heartland Bank states focus on BNZ announces that they will
• 29th diversity and gender equality, be extending their ‘No Interest
Loan Support Scheme’ with
The RBNZ’s figures show looking at broader senior
record levels of mortgage management. They have a Good Shepherd NZ, by making
lending, up by $1.2 billion during Strategic Management Group $5 million worth of individual
December 2019 compared to comprised of 55% women loans of up to $1,500 available
December 2018. assisting to drive this change. to support families financially
impacted by Covid-19.
• Feb. 2020 • 16th
• 19th
Kiwibank reduces its floating
The Council of Financial
• 12th home loan rate passing on the
full OCR cut of 0.75%.
Regulators state their
BNZ announces a drought expectations of responsible
assistance package for
Northland farmers who are • 19th behaviour to banks and
encourages them to continue
New Zealand’s borders close
in need, featuring increased lending, but provide affordable
to all but New Zealanders and
overdraft approvals and long-term customer-
permanent residents.
deferral of scheduled focused solutions.
principal repayments.
• 21st
• 27th
• 28th The Government introduces a
4-tiered Alert Level system to
New Zealand moves to Alert
Kiwibank, Inland Revenue, Level 3.
Accident Compensation assist New Zealand deal with
Corporation cease the use of the impact of Covid-19.
cheques.
• 23rd • May 2020
New Zealand records its first
case of Covid-19.
New Zealand moves to Alert • 8th
Level 3. Mortgage Wars – Kiwibank
announces their first loan
• 25th below 3%, offering a 2.99%
• Mar. 2020 New Zealand moves to Alert fixed interest rate for one year
Level 4.
• 3rd effective from May 11.
ANZ Investments is named
Overall New Zealand Fund
• 29th
• 12th
New Zealand records its first Mortgage Wars – ANZ and ASB
Manager of the Year at the 2020 Covid-19 related death. follow Kiwibank, offering 2.99%
Morningstar awards.
interest rates.
• 5th • Apr. 2020 • 13th
Heartland Bank launches trial
of online home loan origination, • 3rd New Zealand moves to Alert
Rabobank’s Rural Confidence Level 2.
offering leading mortgage rates
Survey shows confidence in
to attract borrowers.
New Zealand’s rural sector is
down, but expects that the
sector will have a crucial role
in the economic and social
recovery from Covid-19.
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