A prime example of the leading indicator is the latest round of interest rates rises by the Reserve Bank of New Zealand. The central bank “hiked interest rates faster and higher” to the current 5.5 per cent – well ahead of the 4.1 per cent rate set by the Reserve Bank of Australia.
And while ANZ NZ economists forecast one more 25 basis point rise to further tighten spending and control inflation, Watson says the bank is closely monitoring customers who took out home loans when interest rates were lower.
“We're watching very carefully people who took out home loans during that time when interest rates were particularly low. They’ve probably got a new home and they’ve got a high loan-to-value ratio. They thought they'd be paying a much lower interest rate than they are now.”
“We've done some stress testing on the book that says, ‘look, there'll absolutely be some customers who are finding it really difficult’. But it's a manageable number. We feel comfortable that we've got the capacity to really help them through.”
The New Zealand business has had to focus on helping customers as it helped the country deal with a myriad of challenges recently.
Natural disasters including severe flooding earlier this year and the impact of Cyclone Gabrielle caused billions of dollars in damage. Crops were washed away, bridges destroyed and roads ruined.
She saw the ongoing devastation of the floods first hand last month during a visit to agricultural customers in the Hawke's Bay region.
“Six months on, it was really tragic to see apple orchards, where halfway up the trees the apples are still on the trees because they'd been flooded and couldn't be picked.”
Looking for regrowth
ANZ has donated about $3 million to various charities helping the flood and storm-affected areas, provided interest-free temporary overdrafts to help with cash flow and is now offering a low-interest “business regrowth” loan.
The $250 million, low-interest rate loan fund is available for both the previous disasters and any future extreme events.
“I think if there's one thing we've learned, that climate change is a reality and we're going to find ourselves with more of these events going forward,” Watson says
The interest rate rises and natural disasters have impacted business lending markets, which Watson says have been “pretty quiet” since the COVID-19 pandemic. In June, it was revealed New Zealand entered a technical recession after gross domestic product shrunk in the March and December quarters.
“We are seeing a little bit of confidence return. We're watching carefully. We're a big agri lender in New Zealand and on farm costs have increased significantly.”
Home lending has been similarly subdued, with loan growth of a bit over 2 per cent in the first nine months of the financial year. House prices are down about 16 per cent on average, with variations around different parts of the country, she says
“Were seeing some green shoots of it getting a little bit stronger in the last couple of months, but it's been really quiet. It takes a while, I think, for people to get their heads around higher rates,” Watson says.
Another major issue is the competition watchdog’s inquiry into personal banking. The New Zealand Commerce Commission plans to conduct a year-long market inquiry that will examine market competition and bank profits.
Watson says it’s understandable the public take an interest in bank profits when personal finances are being stretched by cost-of-living increases.
“ANZ reports a profit of NZ$2 billion. That's a lot of dollars in anyone’s sense. I think what is not so widely understood as the scale of our business,” Watson says. “From a profitability sense, we're about at the average of the NZX return on equity in the market.”
“This gives us an opportunity to put the facts on the table. There's a lot of sound bites out there. So we welcome the opportunity because it's a really competitive market out there.”
Watson says the diversification of the New Zealand business across retail, commercial, agricultural and institutional is a key strength. And one point of difference with the Australian bank is New Zealand has retained a funds management business.
ANZ is New Zealand’s largest KiwiSaver provider, which is the equivalent of the Australian superannuation scheme. It’s a “really important part of our customer journey,” she says.
“You can withdraw your KiwiSaver to put a deposit on a first home and use it for long-term retirement savings. So it’s a really important part of the overall financial wellbeing of our customer base.”
Brett Foley is Managing Editor of bluenotes