Financial Institutions Performance Survey FIPS December 2019 Quarterly Results 2 | KPMG | FIPS Quarterly Results December 2019 Overview (Current as at 27 March 2020: Other bank economists were at this There is a social/moral angle to 10 a.m.) stage only forecasting a contraction the containment of the virus and in the March quarter, even though governments will be looking to curb Economy and business their outlooks are getting gloomier by the spread at the expense of any short- 3 outlook the day . term economic costs and to maintain the health and safety of their citizens. In our recent publication FIPS ANZ economists upped the ante, Banks: Review of 20191 released on calling for more fiscal stimulus, sooner. 18 February 2020, we discussed how They believed that scrapping this year’s One can say that it is fairly certain despite market indicators being good minimum wage increase should be a that COVID-19 will have significant and gross domestic product (GDP) ’no-brainer‘ for the Government, which economic implications. still growing, confidence was down. needs to get comfortable borrowing Toward the end of 2019 confidence up to $60 billion more than it originally improved slightly compared to the intended. They called for the 1 April The economic impacts have already rest of the year. One commonly held minimum wage rise from $17.70 to started to show locally, with export view was that because things had $18.90, to be frozen, saying the cost and tourism industries taking the been so good for so long, people were to businesses could lead to additional biggest toll. Visitor arrivals from expecting things to come down off the staff cuts, if not more businesses China were down 80% in the period 3 highs that had been reached because failing . However, the Government between 1 February and 9 March. ’they surely can’t keep getting better‘. has ruled this out in favour of people Indicative numbers from Statistics This expectation has now become continuing to spend money and New Zealand showed forestry and a reality, although not in a way that stimulate the economy. seafood exports to China had declined anyone predicted. The speed at which the COVID-19 in the past six weeks or so, although 4 ANZ’s Chief Economist, outbreak is spreading is alarming, dairy exports remained resilient . Sharon Zollner’s, preliminary results with significant reactions worldwide. Initially, New Zealand had announced for the March ANZ Business Outlook We have seen the World Health significant changes to its border survey show that all key activity Organisation (WHO) confirming a regulations, making it compulsory indicators, including business pandemic, governments announcing for inbound travellers to self-isolate confidence, employment and travel bans and lockdowns and for fourteen days and then more investment intentions gave up the the foreshadowed changes to recently on 19 March, closed its gains made since their lowest point people’s business models, which borders to all non-residents and non- around August/September last are all resulting in macroeconomic citizens. This was followed by a major year. Concerns around the potential forecasts being updated on an almost announcement by the Government impact of the global novel coronavirus daily basis. on 23 March to put the country under (COVID-19) outbreak have caused complete lockdown for a minimum of New Zealand firms’ export intentions four weeks. and their own activity outlook to The speed at which the COVID-19 appear to have dropped significantly2. outbreak is spreading is alarming, with significant reactions This was followed by a major BNZ became the first major bank worldwide. announcement by the Government to predict a recession on 9 March, on 23 March to put the country with their economists expecting the under complete lockdown for a economy to contract in the first two While there is significant uncertainty minimum of four weeks. quarters of the year and warning that regarding the future, one can say that the risk of recession in New Zealand it is fairly certain that COVID-19 will has moved from ’plausible‘ to have significant economic implications ’probable‘. They are forecasting a 0.1% given the magnitude and speed at decline in GDP in both the first and which this situation is developing. second quarters of 2020. © 2020 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. FIPS Quarterly Results December 2019 | KPMG | 3 The Reserve Bank of New Zealand As the COVID-19 outbreak continues This has the potential to feed through (RBNZ) and bank lobby group the to escalate globally and locally, this will into employment and broader activity New Zealand Bankers’ Association continue to have a range of impacts for if sustained long enough. This in-turn (NZBA) issued a joint statement on New Zealand banks ranging from: will adversely affect New Zealand’s 9 March in response to mounting commodity prices which would be – large fluctuations in global financial concerns about the health and expected to move with global demand market prices, exchange rates and economic impacts of the COVID-19 slowing down7. the shape of the yield curve; outbreak in which they said that New Zealand banks are ready to – deterioration of asset quality due respond to the impacts of COVID-19 to the widespread economic A global recession is becoming and financially impacted customers impact of the outbreak, cancelled more likely with every passing day. should contact their banks5. orders, slower payment cycles, and widespread speculation that we could move into a recession To help combat the economic impacts, New Zealand banks are ready to necessitating banks to consider the Government is taking steps to respond to the impacts of COVID-19 relief to impacted customers; help those who are worst affected and financially impacted customers – potential decline in deposits or from the COVID-19 pandemic. The should contact their banks. deposit retention putting additional Cabinet on 9 March had agreed to the pressure on liquidity management; development of a ’business continuity and package‘ which would include a The COVID-19 outbreak has the targeted wage subsidy scheme (similar – with the regulators taking potential to impact the operations to that used after the Canterbury and some pressure off deadlines for of New Zealand’s banking sector by Kaikoura earthquakes), training and regulatory compliance, this may affecting banks’ staff, their funding redeployment options for employees give the banks a chance to consider markets and their customers’ affected by COVID-19, and options their current plans, re-plan or review businesses. The RBNZ has asked all around how the Government could their approach. There is no question banks about their risk management work with banks to support companies that banks have been under approaches and preparedness for that face temporary credit constraints8. compliance pressure over the last COVID-19. RBNZ Governor, Adrian Orr, year or two on multiple fronts. It said the responses from the banks may be that the relief granted here show that the banks are prepared6. On 17 March the Government is needed to manage the COVID-19 launched a $12.1 billion stimulus The RBNZ and NZBA on 9 March outbreak impacts. package. said that depending on a customer’s More specifically banks need to situation, possible options for bank ensure they maintain operational support include6: resilience through this period. Malcolm Following this, on 17 March the – reducing or suspending principal Bruce and Jing Liu have discussed this Government launched a $12.1 billion loan payments and temporarily in their article Business resilience in stimulus package to combat the moving to interest-only repayments; epidemics and pandemics on page 19. economic impact of the COVID-19 outbreak, including $8.7 billion to – helping restructure business loans, support businesses and jobs. This is consolidating loans to help make Government response one of the largest stimulus initiatives repayments more manageable; The virus has spread to more than per capita in the world, equating to 190 countries and territories and a – providing access to short-term around 4% of GDP, which shows global recession is becoming more funding; and that the Government understands likely with every passing day. It’s clear – referring individual customers to the severity of the situation and is that global industrial production at least budgeting services. prepared to take action. Some key is going to be under huge pressure, elements of the package include9: as a result of supply chain disruption. – an initial $500 million boost to the health sector; – $5.1 billion in wage subsidies for affected businesses; © 2020 KPMG, a New Zealand partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4 | KPMG | FIPS Quarterly Results December 2019 – $126 million in support of people to – IRD and Ministry of Social There is no doubt that significant take leave and go into self-isolation; Development (MSD) supporting work lies ahead, but the move by the – $2.8 billion in income support, businesses and workers on issues Government has provided a sigh of including a $25 a-week increase like provisional tax readjustments, relief for many. late payment and filing fees, wage in benefits and a one-off doubling