Credit law change ‘has suffocated the system’, says Kiwibank boss

Changes to the credit law “have suffocated the system” and changes made by the government to ease lending restrictions should be introduced sooner, the Kiwibank boss said.

Speaking after the bank declared a net record
After-tax profit of $131 million for the year to June 30, Steve Jurkovich said the Consumer Credit Agreements and Finance Act (CCCFA) tightening in December had been difficult.

This is one of the drivers of the slowdown in credit activity in the second half of the bank’s financial year.

“The CCCFA has definitely suffocated the system and continues to do so. I think the setup period, trying to get used to the CCCFA, whether you’re an advisor, a client or a bank, was difficult. We knew that it was going to be difficult but it was tough.”

He said changes made by the government that came into effect last month had made no significant difference.

“Ultimately the ‘one size fits all’ approach that was taken was the wrong one and smothered and tried to address issues that didn’t exist with the big players,” Jurkovich said.

Jurkovich said it was surprising the government would wait until March next year to try to improve the law again.

Last month, Trade and Consumer Finance Minister David Clark announced new measures to ease lending regulations.

These changes included the reduction of spending considered by lenders to more explicitly exclude discretionary spending, the reduction of “double counting” of spending associated with revolving credit agreements such as credit cards and buy-it-pay-later programs , and helping to make refinancing or debt consolidation more accessible if suitable for borrowers.

The Department for Enterprise, Innovation and Employment (MBIE) is consulting on the details of these changes ahead of their coming into force in March 2023.

Adopting a targeted approach to lending law that would have targeted certain types of loans or high-risk lenders or consumers was suggested as an option by MBIE, but the government decided not to pursue it.

Jurkovich said he expected home lending to remain slow in the first half of Kiwibank’s 2023 fiscal year, but hoped it would pick up before the summer.

Bad winter weather likely dampened home sales as sellers were cautious in a market where home prices were falling.

“If you think your home price might be stable or drop a bit, that makes you a bit cautious about selling an asset.”

The bank’s credit impairments went from a reversal of $19 million in fiscal 2021 to a loss of $16 million.

Jurkovich said it was difficult to decide whether to put this provision for impairment in the accounts.

“The vast majority of this is a management overlay that we don’t see in real accounts, but as we look to the world ahead of us with stalled supply chains, wage increases, falling assets and confidence , so maybe things are a bit more difficult.”

He said a desk exercise looking at those who bought a property 18 months ago with a 5% down payment and saw a 5% drop in price meant only around 70 customers could face negative equity on its million customers.

It was only a problem if those customers were forced to sell.

“We are much more exposed to the weakening due to an increase in unemployment than anything else. And our view at the moment is: if you really want a job, you can get one.”

On the business lending front, Jurkovich said Kiwibank is maintaining its appetite for lending, but the big four banks have pulled back.

“The market is dominated by the big four banks – 97% – and you’ve seen them all move into mortgages because of the better yields. For us, that makes us feel like it gives us a good opportunity to keep the same appetite but to grow.”

Jurkovich said the big challenge for companies is getting enough staff.

“I hope we can significantly improve our ability to bring people into the country, because I think there’s a lot of blocked capacity in businesses.”

He said that in tourism and horticulture, where demand for high quality products existed, having staff in New Zealand was essential.

Kiwibank was competing with techies from other big banks – as all of them were trying to undertake digital transformation projects.

“We try to hire people from abroad. It’s been so difficult – it’s recalibrated the way we think we should attract people.”

He said the balance between performance and purpose and working on the latest technology had been the biggest strengths for the new signings.

He said attrition went from a low of around 10% in adolescence.

Kiwibank had decided to solve this problem by making jobs in its call center and business operations work from anywhere.