Covid-19

NZ First mulls Covid clampdown on banks

NZ First believes Reserve Bank Governor Adrian Orr isn't being tough enough on banks and will discuss its demands for a Government crackdown

Shane Jones says his party will discuss ways the Government can take a tougher line on banks after receiving multiple reports small businesses are being charged sky-high interest rates during the Covid-19 downturn.

The Associate Minister of Finance also alleged RBNZ Governor Adrian Orr was playing too nicely with the banks and "sugarcoating" the actions they'd taken in response to the pandemic.

"Ordinarily it's the job of the politicians to sugarcoat, not the regulator of the banking industry."

He said Orr's performance at the Epidemic Response Committee last Thursday didn't meet the standards expected of a regulator.

"I heard very clearly what the Governor of the Reserve Bank had to say to the select committee last week. He said words to the effect that banks need to play nice with the business community," Jones said.

"Ordinarily it's the job of the politicians to sugarcoat, not the regulator of the banking industry," he said.

Jones said NZ First would hold caucus discussions on new ways to crack down on the banks.

He and other MPs had been flooded with complaints from constituents. The worst of these included allegations that SMEs were being charged interest rates of 25 percent on their overdrafts. 

"Any suggestion that a 25 percent overdraft figure is tolerable...it's worse than anything in the bloody rotten days of Rogernomics," Jones said.

"It's common sense that a lot of small businesses will find themselves in OD [overdraft] because they haven't been paid for the last five weeks," he said.

Three banks who responded to Newsroom's queries on the issue denied claims their interest rates ran as high as Jones alleged. They also said they had dropped their rates to help businesses through the pandemic.

A BNZ spokesman said SME overdraft rates started at a base rate of 8.3 percent that was scaled up according to the different levels of risk that were associated with a particular business or industry.

"There are a few customers at the top end of this range, but this is under 20 percent," he said.

The spokesman said its overdraft base rate had been cut by 1.3 percent. He also noted the bank had started lending to SMEs through the Government-backed Business Finance Guarantee Scheme (BFGS) at interest rates that started at 2.55 percent. 

A spokeswoman for ASB Bank said "there are no circumstances where ASB is charging a 25 percent interest rate for SME overdrafts".

She said its interest rate for temporary overdrafts was lowered by 1.5 percent to 2.95 percent after the pandemic hit.

An ANZ spokesman said small business overdraft interest rates typically ranged between 5 and 15 percent.

"In cases where the agreed overdraft is exceeded, additional interest may be charged, but only on the portion the customer is in excess," the spokesman said.

"While overdrafts have been extended during the crisis our actual [overdraft] limit usage hasn’t increased by much, due to businesses preparing for the worst and holding a buffer," he said.

He said interest rates on overdrafts were a reflection of several factors including the cost of funds, cost of capital the bank held against the loan, administration costs and lending risk.

The one percent

Financial advisor Graham Smith, of Keyman Insurance, said SMEs had to draw on overdrafts before they could access the Government's BFGS, which was another reason many were going into overdraft at this time.

"You've got to have used other lines of credit and loans that are available to you before they'll even talk to you [for the BFGS]," Smith said.

Banks were giving SMEs very small discounts on overdraft rates and selling it as generosity in the wake of Covid-19, he said.

"I had one [bank] talking to a client about how generous they were being to that client by giving them a discount on their overdraft.

"But when we looked at it, it was a one percent discount off their standard rate.. That's hardly costing them anything is it?"

Smith said there was a "massive" range in the interest rates being charged.

He gave 11 percent as the rough midpoint for the rates that were being levied on overdrafts for SMEs.

"A cafe, bar or restaurant: they're the people who they're charging a much higher rate to."

Smith said second-tier non-bank lenders often charged the highest interest rates, but it was difficult to get funds through them now.

"The banks are holding all the cards," Smith said.

'Attitudinal change'

Jones said the Reserve Bank had taken a number of measures to ease pressure on banks. Those included deferring new capital requirements and reducing their core funding ratio from 75 percent to 50 percent.

In return, the country needed to see a "proper attitudinal change" from the banks.

Jones said SMEs had helped fatten bank balance sheets during good times, so there was a duty on banks to help them out when times were tough.

"We're going to have to take some risks in accelerating the recovery and those risks cannot be exclusively taken by the Crown," Jones said.

"The Reserve Bank needs to ensure there's a suitable risk distribution between borrower and lender amongst the Aussie-owned banks," he said. 

"I'm just deeply fearful that the Aussie owners of the banks will not want them to take too many risks in New Zealand because they've got enough problems in Australia."

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