Geoff Bascand: Banking the economy in post-COVID Aotearoa

Speech by Mr Geoff Bascand, Deputy Governor and General Manager of Financial Stability of the Reserve Bank of New Zealand, to banking industry representatives, Wellington, 31 July 2020.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Hihiritia te ra, e tiaho ano ai apopo

- Harness the rays of the sun today, so that we may bring a brighter future tomorrow.

Introduction

The COVID-19 health crisis has posed significant challenges for the New Zealand economy and financial system and we expect it will take some time before we see a full recovery. The immediate operational challenges for the financial sector have been successfully overcome and the system has proved resilient so far, in part resulting from a stronger regulatory framework and favourable economic conditions over the past decade. As we gradually move past the challenges currently facing the banking sector, we expect issues such as alternative monetary policy, accelerating digitisation and new competitive challenges will shape the banking sector in the years to come.

In the short-term, business failures and rising unemployment will increase credit losses and act as a drag on bank profitability. Low interest rates will reduce net interest margins (a key determinant of banks' profits) and may accentuate growth in non-deposit-taking, non-bank lending institutions. While changing consumer preferences towards online banking and digitisation of payments - which have been accelerated by social distancing - may expose differences in banks' technological capacity and cost structures.