INL Feb 15 2017 Digital Edition

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14 Businesslink FEBRUARY 15, 2017 Serious challenges confront commercial banks Sam Shuttleworth Future of Banking through a Kiwi Lens’ (A PricewaterhouseCoopers Strategy and Future of ‘The Banking in Australia) looks at the performance of Australia’s big banks and raises questions about the six trends that are forcing them to consider how they operate today, in preparation for tomorrow. Almost all New Zealand’s banks are Australian-owned and therefore face the same issues – most of these are global challenges that cannot be ignored. The report looks at changes in demographics, technology and consumer behaviour; Asiafication; the impact of an interventionist Government; and a subdued macro economy. Getting ahead of these trends and looking at them from a Kiwi perspective is important for our own banking sector. When we look at the report, we see six big trends affecting the financial sector. All these can be looked at through a New Zealand lens – they must be, if our banks are to stay relevant, profitable and evolve to suit the environment. Connecting with customers Banks must become simpler, smaller and more deeply connected to customers so that they can become more agile in an ever-changing world. A bank’s ability to quickly adapt to suit customer preferences is going to be a key focus over the next few years. Banks are increasingly having to adapt their service offerings as the customer demographic morphs from the wealthiest generation in history to the most indebted. In New Zealand, half of our population have some form of debt, with 24-to-35year-olds the most indebted age group, which brings up questions about how our banks service different, less-wealthy demographics and whether, as a result, their appetite for risk is changing. Major posers This also poses some big questions for CEOs in the sector: Are New Zealand banks ready for a wider change to their banking models because of a change in their customers’ circumstances? From an ageing population to one with different levels of wealth, banks will seek to be more responsive to our shifting demographics. As we approach 2020, the Report outlines six priorities for banks and some proposals for how they can respond. They must organise themselves around the customer, simplify the organisation, make the most of their partnerships, focus on specific areas of innovation, embrace regulation and put their culture to work. Sam Shuttleworth is Partner and Banking & Capital Markets Leader at Pricewaterhouse- Coopers based in Auckland. The above article is only a curtain- raiser. For full text of the Report, please visit www.pwc.co.nz Timing is of the essence of OCR moves The Reserve Bank of New Zealand (RBNZ) announced on Thursday, February 9, 2017 that it would maintain the Official Cash Rate (OCR) at 1.75%, as widely expected. The language of the media statement largely retained the neutral tone from November. The RBNZ concluded that “monetary policy will remain accommodative for a considerable period,” and noted that there are still significant uncertainties in the economic environment. Subtle lift However, there was a subtle upward shift in the RBNZ’s interest rate projections. Over most of the forecast horizon, the projected OCR was lifted from 1.7% in November to 1.8% in February. Both numbers are equally consistent with a 1.75% cash rate (after rounding), but the latter eliminates the small possibility of another rate cut in this cycle. In addition, the projected OCR track is no longer completely flat, but now curves upward slightly towards the end of the forecasts, implying a 2% cash rate by early 2020. While this is the mildest of tightening biases – we would give better odds of the first OCR hike coming earlier than this date rather than later – nevertheless it sends a clear signal that the next OCR move is expected to be up. Positive outlook The RBNZ remains positive on the outlook for the domestic economy, and cautious about the global environment. However, there were some more upbeat comments on the global backdrop, including higher commodity prices, an uptick in headline inflation, and monetary policy moving away from super-accommodative settings. The RBNZ acknowledged that headline inflation is back within the 1-3% target range, but repeated that the return to the 2% midpoint is likely to be gradual. In fact, the RBNZ does not expect inflation to reach 2% until June 2019, six months later than previously thought. The continued strength of the New Zealand dollar means that tradable goods inflation is forecast to remain near-zero or negative for the next few years. That leaves the RBNZ even more dependent on strong domestic growth, driving a lift in non-tradable prices, in order to meet the inflation target. Hawkish tilt While the RBNZ statement had a slightly more hawkish tilt than we were expecting, it was a far cry from the OCR hike by end-2017 that financial markets were pricing in. Consequently, the New Zealand dollar fell about half a cent to 0.7250, and the two-year swap rate fell five basis points to 2.35%. Our view on the OCR is broadly in line with the RBNZ’s statement: the first hike is too far out to be precise about the timing. All the signs point to inflation dwelling the lower half of the target range for some time. On that basis, the case for reversing the recent OCR cuts any time soon looks weak.
FEBRUARY 15, 2017 Businesslink 15 Rent or buy, houses haunt Aucklanders Priyanca Radhakrishnan Aucklanders continue to experience soaring house prices, increasing rents and home ownership has fallen to its lowest level in 65 years. We are fourth in the world relative to income and second relative to rents. An OECD 2015 Report said that first homebuyers and lower income groups are the most affected by our rampant property market. However, high property prices also adversely affect Auckland’s economy as businesses are forced to pay more for worker recruitment and retention. Financial insecurity An OECD economist warned that house price growth is a threat to our financial stability and urged New Zealand to dramatically increase Auckland’s housing supply. Out on the campaign trail last week, I spoke to a few people in the Maungakiekie electorate for who, owning their first house was a dream. Their main issue was with renting – rental affordability and quality. I studied statistics to find out how unaffordable rentals have become and how they compare internationally. The OECD average for housing costs, which includes rent, electricity, water supply, gas and expenditure on furniture and furnishings, main- tenance and repairs, is 21%. Aucklanders are paying on average 32% of their household income on rent alone! We also have an increasing number of people who are forced to rent as home ownership becomes increasingly impossible. In fact, in Auckland, half of our adult population is renting. In Mt Wellington, only 36% of families own their own homes. The trauma When my husband and I moved to Auckland a few years ago, we found it excruciatingly difficult to find a place to rent. When we finally found a place – 55 applications later and purely through the kindness of friends – the rental contract was just for a year. Towards the end of that year, it became clear that the owners wanted to move into the property. The thought of finding rentals each year and the trauma of transient living forced us to consider buying a home. So, we bit the bullet, valiantly resigned ourselves to a future of beansand-toast dinners and bought a house. For many like us, long-term rentals are not a viable option. One year rental contracts are standard in New Zealand. If a property is sold, existing tenants can be asked to leave with just 42 days’ notice. You cannot make changes to the property in New Zealand – this includes putting up pictures and painting the walls – unless you happen to have a very understanding house owner. Embellishing homes There is so much more to housing than just four walls and a roof. Home is our sanctuary and security after a long work week. Our street and suburb becomes our community. It is difficult to feel rooted in a community if the threat of having to move hangs over our heads each year. Precarious living also affects children’s schooling and the stability that families need to flourish. It also makes it difficult to plan. Shamubeel Eaqub, Economist and author of ‘Generation Rent,’ argues that renting can become a viable alternative to home ownership. However, we need to address short-term leases and review laws around notice periods and reasons for eviction as the German and Swiss have done. Long-Term Contracts In many parts of Europe, long-term renting is the norm. Long-term contracts and more flexibility give tenants the chance to plan for the future. It also gives them more ‘ownership’ of their homes, while allowing owners control of their asset and stable tenancies. The Labour Party is currently looking into the rental experience in New Zealand, with a view to making it better. If you are renting or have a renting experience, please have your say at web version of this article on the Indian Newslink websitewww.indiannewslink.co.nz If you would like to contact our Member of Parliament and Labour Party Housing spokesperson, Phil Twyford, please email phil.twyford@parliament. govt.nz Priyanca Radhakrishnan is a voracious reader, champions social and community causes and is a strong advocate of ethnic and gender diversity in corporate governance and in public life. She is a Member of the Labour Party Policy Council and lives in Auckland. She is Labour Party’s candidate at the Maungakiekie constituency in the general elections to be held on September 23, 2017. Email: priyanca@labour. org.nz
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