UNDERSTANDING THE NEW WORLD : The new face of banking

As small country, heavily dependent on offshore funds, New Zealand has been lucky to come out of the global financial crisis bruised but not beaten, say those in the banking industry.
But the legacy of the meltdown – reduction of confidence in the financial sector – means there have had to be some fundamental changes on the banking landscape.
We escaped the worst of the crisis, unlike the US, where poor banking practices shook the financial world to its core. There was wild risk-taking within large US banks, says Professor Hélène Rey, head of economics at the London Business School. Regulators were too complacent or too indulgent in the face of the banks’ “charm offensive”, she says.
“Ratings agencies, wishing to protect their ever-increasing profits from Wall Street, failed to properly assess the risk of the overly creative and complex financial instruments built on the shaky foundation of sub-prime mortgages.”
However, here on the other side of the world, we can congratulate ourselves that the foundations largely remained strong. And for that, we have to acknowledge the stability of the Australian banks that make up large part of this country’s lending institutions.
Bruce McLachlan, Westpac’s Retail Bank general manager, says the Australian banking community remained strong through the global financial crisis. “They all held their AA rating right through that period, and there are only handful of banks worldwide that have an AA rating.” [There are now only 13 AA-rated banks worldwide, down from 20 before the financial crisis.]
“New Zealanders haven’t historically saved enough to fund banks, so we have dependence on offshore sources of funding,” he says. “If the ratings of the Australian banks had gone down, we would have been exponentially more exposed. But the banks all remained profitable. They have all taken some bad debts, but it didn’t push any of us into loss-making position.”
ANZ’s managing director of institutional banking David Green says some of our survival was also due to New Zealand companies reacting early to the events that were happening globally. “Owners were pretty quick at cutting costs to get them through that environment. number of large companies went out and raised equity and prioritised managing investment activity. Through taking costs out of their businesses and slowing down expenditure, they protected themselves against reduced earnings.”
Andrew Thorburn, CEO of BNZ, agrees, although he says we are still facing some ongoing challenges: “There is still volatility and uncertainty in the market. However, the economy is well placed in export and agribusiness, with rising commodity prices, and the long-term benefits of tourism. Rising public debt is bit of concern, but it’s not unmanageable. The banks are important sources of offshore capital, so we need to be consistently vigilant about improving our performance.”
Kerri Thompson, managing director, retail, for ANZ National Bank, says there is new sense of uncertainty after the finance company crashes, and there has been some ‘flight’ back to banks and into products like Bonus Bonds. “What we’re seeing now is people taking less risk with their money. They’re looking at bank term deposits rather than other more risky investments.”

New faces
With customers hungry for more secure investments, it’s great time to turn finance company into bank, with the prospect of consequently better credit rating. News just weeks ago of ‘heartland’ bank proposed by the merger of Marac Finance, the Southern Cross Building Society and Canterbury Building Society came as no surprise to the industry.
Jeff Greenslade admits he was recruited to Marac last year after 20 years as senior executive in the ANZ National Banking Group to drive the project. It would have launched sooner, but he says he was side-tracked by recapitalisation focus earlier this year.
“Clearly being bank does provide us with more stable and secure business,” he says.
Marac Finance currently has BB+ rating from Standard & Poor’s, with negative outlook, Canterbury Building Society also has BB+ rating (stable) and Southern Cross BB rating (stable).
Says Greenslade: “I think that we need to get an investment-grade rating and we’re working on that. We have high level of confidence that we’ll get there, based on Standard & Poor’s comments [on the launch].”
But Greenslade adds that there’s more to the launch than just that: “There’s no point becoming bank just to react to circumstances, but we believe there is need out there. We can deliver service, heartland New Zealand concept that’s based around country values, local representation, having an empathy with the needs of middle New Zealand, farmers and the rural economy.”
Greenslade says the new, Christchurch-based bank will not be trying to be all things to all people and will be focusing on specific parts of the economy, such as small businesses and the rural sector, as well as meeting the needs of families, not just individuals.
He says customers want to speak to person, “… and it will be the same person. There will be human interface and consistency.” If you ask people which banking channel they prefer to use, they will answer most often the internet, he says, but they still like to have other people around for the important things. “It’s about interpersonal skills and judgement skills.”
It’s been suggested that if and when Marac gets the go-ahead to become bank, other finance companies will follow. “Whether there’ll be others coming, I don’t know. That remains to be seen,” says Greenslade cautiously.
Other banks say the process of becoming bank is rigorous one, tightly controlled by the Reserve Bank – and it will take time. And it begs the question of whether there are already too many banks in New Zealand – we have more per capita than Australia. Says BNZ’s Thorburn: “Four and half million people, with five to six big banks and then there are the offshore banks… It is very competitive market but I think that’s good thing for customers. It pushes everyone to be more innovative.”
Clearly Greenslade believes there’s room for one more bank. “We’re never going to be massive big bank, we’ll stay small-to-medium sized bank, focusing on what we do well. If you get too big, you lose touch, and we think we can make the model work.” And it was the little guy who beat the big guns in the approval stakes this year. In February, the Roy Morgan New Zealand Banking Customer Satisfaction Survey revealed that small player TSB Bank was the clear market leader in client approval levels, with 91.4 percent. The top performers among the major five banks were National Bank (79.7 percent) and ASB (79.6 percent), followed by BNZ (74.3 percent), Westpac (73.8 percent) and ANZ (72.5 percent).

New banking styles
The new proposed heartland bank isn’t the only institution to look again at the increasingly technological face of banking – and find it wanting. raft of surveys across the industry shows customers are demanding dramatic changes to both business and retail banking, to make banking human again.
BNZ’s Partners Business Centres concept is breaking new ground in the world of business banking. Each centre offers lounge-style facilities and meeting rooms for bank clients to use for their own business meetings, booked online. Clients can log on to the internet there, show presentations, write reports, have coffee and network with other business owners.
At 80 Queen Street in Auckland’s CBD, whole level of the Deloitte Building has been set aside as Partners’ business centre. Says Di Maxwell, BNZ’s head of external affairs: “They tell us it’s just like the Koru Lounge.” The bank sees the centres becoming commercial hubs within their communities. Seven centres have already opened, with 23 more due to open around the country over the next 18 months.
“We’ve tried to be more customer-focused and asked ourselves, how do we change to make the business more client-focused, inn

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