Low interest rates will reduce net interest margins (a key determinant of banks’ profits) and may accentuate growth in non-deposit-taking, non-bank lending institutions. While changing consumer preferences towards online banking and digitisation of payments – which have been accelerated by social distancing – may expose differences in banks’ technological capacity and cost structures.
In the face of these challenges, the banking sector could choose to hunker down and seek to ride out the storm until the good times roll again. Or, the banking system could continue to step up and play a crucial part in supporting New Zealand’s economic recovery and maximise its potential competitive advantage of relationship lending and customer information.