Bank profitability will be challenged by increasing credit losses, but an unduly cautious approach to protect profitability is likely to worsen economic and financial stability. Notwithstanding the extraordinary nature of the pandemic, these risks confronting banks are familiar consequences of economic recessions. The potential for very low interest rates for a long period presents a new challenge in New Zealand.
Other risks continue to emerge and will present further challenges for banking well beyond the duration of the current crisis. Cyber threats, climate risks, and new forms of competition will all disrupt the sector in various ways. Banking must keep evolving. Old business models either get revamped or replaced eventually.