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27.57% - KPMG International
FIPS                   Financial Institutions Performance Survey
                         Banks – Review of 2020

                            decrease in NPAT
                                                                     9.04%  rise in
                                                                     operating expenses

     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
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Current and up to date as at 5 p.m. Friday 19 February 2021

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
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
66   Massey University: Banking industry review and
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
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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.
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2 | KPMG | FIPS 2020

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.
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FIPS 2020 | KPMG | 3

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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
                                                                               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.

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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

      BUSINESS LENDING RETAIL RATE (RHS)                                          450                                                                                                                                         5.0
                                                                                  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
                                                                                  165                                                                                                                                         0.5
                                                                                  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






SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS                                             JAN 19                           JUL 19                           JAN 20                           JUL 20                    NOV 20

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FIPS 2020 | KPMG | 9

                BANK SECTOR LENDING                                                $BILLIONS
                                                                                                                                                                                       11.1B                       8.7B
                                                                                   400                                                                     11.4B
                                                                                   350              10.6B                                                                                                        109.3B
                                                                                   300                                         103.1B


                                                                                   150                                                                                                                           292.6B
                                                                                                                                                          256.0B                     273.6B
       HOUSING                                                                                     228.9B                      241.6B
SOURCE: RESERVE BANK OF NEW ZEALAND STATISTICS                                                      DEC 16                     DEC 17                      DEC 18                     DEC 19                     NOV 20

                AS AT 31 DECEMBER 2020

       MINING 14% (2019: 14%)
       MANUFACTURING 2% (2019: 3%)
       UTILITIES 1% (2019: 2%)
       CONSTRUCTION 1% (2019: 2%)
       (2019: 31%)
       INSURANCE 2% (2019: 2%)
       AUTHORITIES 3% (2019: 3%)
       MORTGAGES 43% (2019: 41%)
       PERSONAL LOANS 2% (2019: 2%)


               MAJOR BANKS: COST OF FUNDS                                          %
   6           VS. AVERAGE OVERNIGHT                                               3.5
               INTERBANK CASH RATE


        ANZ                                                                        2.0


       KIWIBANK                                                                     1.0

        CASH RATE
SOURCE: AVERAGE OVERNIGHT INTERBANK CASH RATE:                                                    MAR 17           SEP 17          MAR 18            SEP 18          MAR 19            SEP 19          MAR 20           SEP 20

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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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FIPS 2020 | KPMG | 11

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.

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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.

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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.

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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.

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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

  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

  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.

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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.
                                                                                  •        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.

© 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.
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