Banks’ initial responses to the COVID-19-induced lockdown was strong. Banks stepped up and supported their customers with mortgage deferrals, liquidity facilities, and covenant relief. Today, $ of residential mortgages is currently deferring principal and interest payments, and a further $ of mortgages have moved to ‘interest only’.7 This represents 14 percent of the banking sector’s mortgage book (Figure C).
But a key determinant of the success of New Zealand’s economic recovery to come will be the willingness of banks to lend to productive, job-rich sectors of the economy so that we can collectively take advantage of New Zealand’s enviable position of having eliminated community transmission. Now is the time for banks to prudently drawdown on their buffers to support their customers.