Kiwibank Chief Executive Steve Jurkovich reflects on the challenges facing the economy post-lockdown and why it took the bold step last week to slash its variable interest rates, which he says is more than just an interest rate play.
It’s been great to be back in the Kiwibank office in Level 1 and feel the buzz of Auckland and Wellington again – you get a real sense of the businesses awakening from the long lockdown and getting back into their stride. It’s such a relief for many businesses to have customers back – espressos being poured, lunches made, suits dry cleaned, locks trimmed, credit cards being flexed – the release of pent up activity that will pump much needed revenue into the battered accounts of so many central businesses.
The Government’s Covid-19 response has undoubtedly helped with the wage subsidy and IRD Small Business Cashflow Scheme, particularly, providing timely support to get workers and businesses through the initial economic shock.
I’m proud of the role Kiwibank has played to step up and support some 15,000 personal and business customers with a range of assistance from loan repayment deferrals to converting loans to interest-only for a period. We’ve also been proactively contacting some of our more vulnerable customers directly to tailor the help they need.
But we’re under no illusion that many are doing it tough, real tough, despite all the support on offer. We’ve all seen the headlines of retail and tourism businesses restructuring and laying off staff. I don’t think we’ll see the end of those headlines anytime soon despite some promising signs of recovery.
Lockdown has given us a chance to reset and reflect. At Kiwibank we’ve been doing some deep thinking about what more we can do to support our personal and business customers; about living up to our purpose. At Kiwibank it’s all about Kiwis making Kiwis better off. It’s great to have the backing of a board, which not only supports us, but expects us to play an outsized part in New Zealand’s recovery.
The founding principle of Kiwibank was to challenge the much larger Australian-owned competitors for the benefit of New Zealand.
While all banks have done a good job supporting people’s needs through Levels 4, 3 and 2, now that we are at Level 1, it’s all about reseting and recovering.
It’s clear we aren’t living up to our purpose if we don’t do all we can to help customers get back on their feet. And when you think about that as a bank, there are two parts, business and personal customers, and two sides to the equation, depositors and borrowers.
While it’s a difficult balance, we consider it’s borrowers who are the people most needing a helping hand right now. It seems likely to us that interest rates are going to be low for a long time which is a big part of the context of a global recovery that poses the question of what Kiwibank does in this regard?
Our home loan customers make a choice between fixed and floating rates, so we have been weighing up what we could we do to create more flexibility and choice. Only about 15 percent of home loan customers choose to float and so we think there’s room to support those customers to make that move and try and level the playing field with fixed rates and bring more focus to the customer outcomes like flexibility and ability to repay without penalty.
For small and medium businesses, they are experiencing more uncertainty and volatility in their returns. For some businesses they’ll be doing well from pent-up customer demand. Variable rate facilities allow the extra cashflow to be used to repay facilities and reduce borrowing costs. That’s more difficult with fixed rates.
So, last week we took the big step of reseting the lending market bank by announcing a 100bps or 1 percent drop in our variable interest rates across the board. It’s the biggest overall move we have ever made on rates and pretty much unprecedented when it comes to interest rate adjustments by banks in this type of context. I think the public and our stakeholders expect Kiwibank to take bold action to support New Zealand. It’s certainly one of the most significant decisions I’ve made in my banking career.
The impact is providing $20 million back to some 35,000 customers – just under the number that filled Eden Park on Sunday to watch the Blues take on the Hurricanes. It’s a lot of people and businesses.
By reducing the pricing gap between fixed and variable rates, we are giving people more flexibility and choice. Once they have that money in their pockets, they can choose to reduce their mortgage, shorten their mortgage term, or simply put it aside for KiwiSaver, protect themselves via insurance or save for a rainy day.
With our business variable loans, business revolving credit, and business overdraft all reducing by 1 percent we hope businesses seriously consider the opportunity which will provide cashflow relief or allow them to apply the extra savings to reduce their current debt levels.
This is not a “special deal” or a limited time offer. It’s all about doing the right thing at this moment and supporting our customers. Of course, we are hopeful this will encourage some new customers to make the switch to a great Kiwi bank and recognise that there is choice in the banking market.
Some commentators are saying we have set the cat among the pigeons. Well, we don’t mind that one bit. Our founding vision was about being a bank that could challenge the big Australian-owned banks and back Kiwis to succeed.
We’re not afraid to lead the market so we can support more New Zealanders. Now, more than ever, businesses are stepping up and doing their bit. Kiwibank is proud to play its part.
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