The non-bank sector has responded to the impact of Covid-19 in a number of ways, but the standout response has been the manner and speed in which they have assisted their customers with relief packages.
Early in the year, the Reserve Bank of New Zealand announced funding support for the bank sector to allow them to support their customers through the economic disruption. The same government support was not extended to the non-bank sector, which includes financial institutions such as credit unions, building societies and finance companies who also offer many of the same products and services as banks.
However, without regulatory help and support from the Government, non-bank sector institutions committed to providing their customers with the same level of relief and assistance as banks, via the strength of their own balance sheets.
“It may appear unusual that they were not covered by some form of government support, but that’s probably because when looked at numerically it is a small sector, at just 3-4% of total lending nationally. However, what we need to remember about that lending is that the sector touches one million plus customers nationwide and it is specialist lending - the type of lending banks either can’t or won’t offer.” says John Kensington, KPMG’s Head of Banking and Finance.
2020 has been a game of two halves for participants in KPMG’s Non-Bank Financial Institutions Performance Survey (FIPS). For organisations with balance dates of December and March, there was very little impact on their results. However, for those with June and September balance dates it is a different story, with the impact of Covid-19 becoming apparent.
Overall, the non-bank financial sector experienced a 7.97% drop in profit for the year, with net profit after tax sitting at $299.6 million. This can be largely attributed to a collective drop in profit of 22.92% between those with balance dates in June and September.
While growth in total assets across the sector plateaued, increasing by just 3.95%, this is a relatively strong result given the challenging operating environment. Although increases in provisioning and impaired asset expenses had the most significant impact on financial statements, things have not turned out as badly as initially feared, with many participants reporting past dues and arrears at levels similar to the prior year – some saying they are the lowest they have ever been.
“The biggest impact you see in these financial statements is the increase in provisioning and impaired asset expense, driven by forward looking provisioning models amid continued uncertainty. It’s rather counter-intuitive to have your past dues and impaired assets as good as ever but have that large provisioning, but it’s a reflection of the current environment and the forward-looking view that models take” says Kensington.
Of note, this year during the interviews we conducted as part of our research for the FIPS survey, two new topics featured in all of our conversations – taking care of people’s wellbeing, (both staff and customers), and the rapid adoption of flexible working.
The impact of these on organisations’ culture and productivity have dominated the conversations that we have been having with the leaders in the non-bank sector - a marked change from the usual topics of lending growth, interest margins and credit risk. The shift in how, when and where people work has had a flow on effect across a range of considerations, such as more collaborative use of office spaces and the need to find new ways to measure productivity, support their staff and best service their customers.
As for many organisations both locally and worldwide, a key area for attention going forward will be the challenge of maintaining company culture and values across a flexible workforce and ensuring they continue to be reflected in service delivery as we have seen in 2020.