Banks could slash branch networks from 600 to 200 in next 10 years after lockdown showed they didn’t need branches
Shrinking branch network: New Zealand’s branch banking network is likely to shrink dramatically in the next decade according to David Tripe, Professor of Banking Studies at Massey University who believes lessons learned by the banks during covid-19 may well accelerate the process.
Empty spaces: Tripe said banks had been able to operate successfully during the lockdown using their online platforms and call centre networks, while maintaining only a very limited branch network. As cash deposits dwindle and the majority of loan transactions and mortgage applications can be completed online, Tripe believes the days of the branch network look to be increasingly limited.
Significant cost saving: According to KPMG’s 2019 survey of banks, the four major banks have around 600 branches between them. Tripe expected that to shrink by more than two thirds by 2030. Operating a physical branch network was costly for the banks. Even with minimal staffing levels, Tripe estimated each branch costs on average between $750,000 and $1 million a year to operate. That could save each of the banks around $50 million a year if they opted to retain just 50 branches each.
Wiped out: Smith City shareholders have effectively seen their investment all but wiped out after the company’s Board agreed to sell the bulk of the business to Polar Capital in a distress sale. The 102-year-old firm was given a short lifeline by its banker ASB after the company struggled to make a $1.5 million repayment on its $65 million loan facility. After allowing for the debt and existing liabilities, Smiths City said the net value of the deal was about $8 million.
Best we could do: Chair Alastair Kerr said the deal offered the best option to secure the company’s future, though its ordinary shares were expected to have no value following the sale. The stock was trading at 14 cents before it was halted on Friday and has now been suspended, pending delisting.
Most jobs saved: Polar Capital will acquire all of Smiths City Finance and the majority of the Smiths City stores. At least seven of the group’s 29 stores will be closed subject to final agreement on lease terms and transfers. Up to 75 percent of Smiths City’s 465 existing staff are likely to be retained, leaving more than a hundred employees out of work. Polar Capital is owned by Colin Neal, founder of the refrigerated logistics company, Big Chill which was acquired by Freightways for $117 million last month.
Services sector slumps: Activity in New Zealand’s services sector for April broadly matches recent data from the manufacturing sector, showing both sectors virtually ground to a standstill last month. The BNZ – BusinessNZ Performance of Services Index showed a reading of 25.9 for the month, a sharp contraction from the previous month. April marked the lowest level of activity since the survey began in 2007.
Staffing holding up: BNZ senior economist Craig Ebert said the result wasn’t surprising given the lockdown prevented many business from operating. However Ebert also pointed out, that similar to Friday’s Performance of Manufacturing Index – there was a relative resilience about staffing. In the case of the PSI, its employment index came in at 42.1 for April. The PMI equivalent was 41.2. Combined, they suggest the rate of job cuts in April were limited, largely due to the Government’s wage subsidy.
New bank approved: New Zealand is about to get its 27th registered bank, while also being the world’s largest. Industrial and Commercial Bank of China (ICBC) has been granted Reserve Bank approval to provide banking services in New Zealand.
Big hitter: ICBC is incorporated in China and will operate in New Zealand as a branch, the RBNZ said. According to S&P Global, ICBC has about $4.3 trillion of assets under management. A NZ subsidiary of ICBC has already been providing banking services here since November 2013. The new branch is expected to expand and complement banking services provided by its subsidiary, including facilitation of wholesale banking services.
This might take a while: US Federal Reserve Chairman Jerome Powell left Americans in no doubt that the Fed has their back while warning the recovery from the coronavirus would likely be slow and the current economic downturn could last until late next year. In a rare television interview broadcast in the U.S. on Sunday night, Powell said that Americans need to prepare for “a new economic reality.”
Glass half full: Over 30 million Americans have already filed for unemployment in six weeks and economists agree that the US economy is already in a recession. Despite the dire outlook Powell remained optimistic saying the economy would eventually rebound, assuming the coronavirus doesn’t erupt into a second wave.
More firepower on hand: Powell said that he supports government policies that “help businesses prevent avoidable insolvencies and that do the same for individuals.” He also said the Fed has a range of policy tools it can still deploy if necessary. Markets liked the sound of that pushing overnight futures higher.
Japan in recession: Japan’s economy has entered recession, and it’s likely the coronavirus pandemic is set to make things even worse. The world’s third-largest economy shrank 0.9 percent in the January-to-March quarter, compared to the prior quarter. While slightly better than the 1.2 percent drop forecast in a poll of analysts, it is still the second straight quarter of declines — meeting the technical definition of recession. The annualised drop was 3.4 percent, when measured as an annualized rate.
More pain to come: Japan’s economy was already struggling before the outbreak. Economic activity contracted late last year as the country absorbed a sales tax hike and grappled with the aftermath of Typhoon Hagibis, a powerful storm that hit the country in October causing 74 deaths. However, analysts warn that Japan’s first quarter data does not capture the full effect of the pandemic with one economist forecasting a 12 percent quarter-on-quarter plunge by July.
A way forward: The Taiwanese government and Stanford University in California are undertaking a quarantine and testing regime for foreign travellers that could be a precursor to a broader return for international travel. Taiwan has been identified as one of the world’s most successful countries in containing Covid-19, having suffered just seven deaths and fewer than 500 infections, despite having a population of 24 million and close travel connections with China.
Reduced quarantine: Under a trial that Taipei plans to conduct next month in co-operation with Stanford University’s School of Medicine, a sample of 500 people will fly from San Francisco to the Taiwanese capital, after having tested negative for coronavirus and having gone through quarantine before boarding. They will be tested again every two days after their arrival as well as undergoing the 14-day quarantine that is mandatory for everyone entering Taiwan.
Short quarantine? Researchers will be seeking to establish the shortest safe quarantine period so that people who have to make brief trips for business for example could be allowed to leave quarantine after a few days rather than two weeks.
A whole lotta zooming going on: The trial comes as many countries explore how to restore at least some international travel. In Japan and Hong Kong, travellers are tested for the virus on arrival and made to wait in airports for their results. Taiwan has said it will not reopen its borders until a vaccine is found, but as the world’s largest producer of semiconductors, business trips by senior executives are often necessary.