Kiwibank boss explains why trust is his biggest obstacle

Kiwibank CEO Steve Jurkovich says his biggest headwind over the next six months will be consumer confidence.

The state bank declared a net profit after taxes of $ 57 million for the year on Tuesday. As of June 30: a 47 percent drop from the previous financial year after a large increase in credit losses caused by Covid-19 and lower income from falling interest rates.

Like many companies, Kiwibank faces uncertainty about Covid-19 and ran four different scenarios through its loan book to calculate how much to anticipate for potential credit losses.

The bank recognized $ 51 million in credit impairments, up from $ 12 million in the prior financial year, due to Covid-19.

Jurkovich said the bank’s actual losses from bad loans were still extremely low.

“But the forecasts seem to be more difficult in the future; I think it is appropriate that they go up, hopefully, they have seen it in all the banks.”

He said that at a smaller bank like Kiwibank, any increase in impairment had more of an impact on its bottom line.

“If you have scale and you are making more money, an increase in deficiencies doesn’t really have the same financial impact.

“The smaller banks in New Zealand will suffer the most in terms of overall earnings, but the Australian-owned subsidiaries are big players and serve a lot of clients.”

Jurkovich said it was too early to tell whether the recent Level 3 lockdown in Auckland and the move to Level 2 in the rest of the country would again increase its provisions for future loan defaults.

“My feeling from our card transactions was that this blockade in Auckland, business has recovered faster than the previous blockage, so I don’t anticipate it. But on the other hand, the second time people might feel a little more cautious. “

Jurkovich said that while liquidity and support from the Reserve Bank and the government were really important factors, the big challenge for the bank now was the trust its customers had.

“Do you want to invest in a new home? Do you want to buy an investment property? Do you want to save more or start or invest in a business. All of those things are really anchored in trust, I think that’s the big headwind.

“If people believe that things are going to improve, we will do well. If people sit still and don’t spend, it will be a little more difficult.”

As of June 30, the bank had 2,178 residential mortgage loan customers with $ 838 million in deferral, while 2,981 had $ 1,009 billion in interest alone.

It also got 51 businesses to sign up for the government-backed Business Finance Guarantee Scheme, borrowing $ 8 million.

That’s a small portion of their total loans and advances that totaled $ 22.2 billion.

Jurkovich said the bank could see an increase in home loan deferrals with the wage subsidy ending soon, but many of those with deferral or interest only are now exiting.

“We’re seeing about half of the calls where people want to go back to the old arrangements.”

Jurkovich said that home loans had proven to be very resistant to Covid.

“At the end of last month it was really strong; it proved to be very resilient, it was a bit surprising.”

He said that the current situation did not change the fact that people wanted a roof over their heads.

“With these loan rates, if you can afford a rent you may be able to pay a mortgage and we are seeing people do that. Some of the regional economies like Whanganui have grown very strongly, outside of Auckland and inside of us we are seeing really good growth. “

He said his business customers were reporting demand from people who wanted to buy cars and electronics, although others in the hospitality industry or who relied on face-to-face sales found it difficult.

Interest rates are expected to remain low, with some commentators predicting that mortgage rates will fall below 2 percent in the future.

While it is good news for borrowers, it restricts depositors and bank spreads.

“It’s a headwind, that’s for sure. Low interest rates are the new normal for at least the next few years. All companies have to reorient themselves and do what they need to do and we have to do the same.”