New Zealand banks will still be profitable despite lockdown: S&P

The earlier announced fiscal measures should provide ample support to banks.

Whilst the nation-wide lockdown is expected to weigh on New Zealand’s banking system, the country’s lenders have ample buffers from the government to support stressed customers and smaller companies, reports S&P Global Ratings.

On 25 March, the government declared a state of emergency and imposed a nationwide lockdown with only essential services remaining for business, following its peers across the globe.

The fiscal stimulus introduced by the government in the last few weeks should enable banks to provide support to small and medium-sized enterprises (SMEs), according to S&P.

Also read: NZ banks have ample buffers against pandemic storm: analyst

This should also allow the economy and the banking system to continue to function whilst the outbreak continues.

Further, the government measures will ensure that banks’ profitability will remain adequate to absorb the increased credit losses, according to S&P credit analyst Lisa Barett.

“The support measures announced by the Reserve Bank of New Zealand should alleviate any immediate funding and liquidity risks for the banks, in our view," noted Barrett. "Even though credit losses may escalate we think the banks' profitability should remain adequate to absorb increased credit losses, notwithstanding headwinds from low interest rates.

New Zealand’s four major banks are also still likely to receive timely financial support from their Australian parents, she concluded.