ANZ NZ CEO Antonia Watson says banks have 'committed to the government to see our customers through' oil shock-related cost pressures

ANZ New Zealand CEO Antonia Watson says banks have pledged to the Government that they will "will see our customers through" the ongoing oil shock caused by conflict in the Middle East.

Speaking to interest.co.nz after ANZ NZ posted interim financial results on Friday, Watson said the NZ Government's targeted and temporary response to support lower income households "is good." This sees a change to the in-work tax credit giving low-middle income families with children up to $50 a week to soften the impact from rising fuel costs caused by the Middle East conflict.

Earlier on Friday, ANZ Banking Group CEO Nuno Matos noted in Australia ANZ is supporting the roll-out of zero interest loans to businesses under the government's National Reconstruction Fund's A$1 billion Economic Resilience Program. Matos said ANZ believes Australia will avoid a recession.

"What we've committed to [the NZ] government is that we will see our customers through this, so we're going to look through the cycle," Watson said.

"I think the Australian government has somewhat deeper coffers than ours does, and I think that the approach that the government's been taking here of being targeted and temporary is good."

She said the interest rate environment isn't supportive of COVID-19 era type mortgage deferrals.

"You wouldn't be doing the right thing by customers by having wide-scale mortgage deferrals, given where interest rates are at the moment compared to where they were during COVID," Watson said.

However, she said there are lots of things banks can do on a case-by-case basis, which is probably more appropriate because people and businesses are impacted very differently.

"The number one thing is come and see your bank as soon as you feel like there's getting to be a bit of a strain on your books."

'We're definitely heading' into a stagflationary environment

Ben Kelleher, ANZ NZ's Chief Risk Officer, said customer stress the bank's currently seeing is largely from customers that were already in stress, rather than an influx of new customers feeling the pinch.

"That may change over time if we start getting into a stagflationary environment across the economy, I think we could start to see more coming in. But at this stage, it's more those that are already in [financial stress]. It's really hard to get out," Kelleher said.

"I think we're definitely heading that way [into a stagflationary environment]. I mean, the definition is basically a low growth environment, a low and no growth environment, and increasing inflation. So it's feeling like we're heading that way pretty quickly, right?" 

ANZ NZ says about 44% of its home loan borrowers are at least six months ahead on repayments, and 48% have a savings buffer of at least $5,000. However, Watson acknowledged that buffer can't last forever.

"I think those two stats are good evidence of the way that people have rebuilt their buffers since they got used in the post-COVID period. They've rebuilt them a bit as interest rates came down, but they won't last forever."

"And so the longer this goes on, the more risk there is of further hardships. The best thing that could happen is that we get some resolution soon, and it will take some time to unwind and open the straits [of Hormuz] again and all those sorts of things. But it would be lovely if the geopolitics could sort itself out a little bit," said Watson.

Delay 'increases the likelihood of persistent rather than transitory credit implications'

Meanwhile, in a report released on Friday credit rating agency S&P Global Ratings made the point that time compounds the credit implications of the war.

"More delay in reopening the Strait of Hormuz, even without escalation in the Middle East war, increases the likelihood of persistent rather than transitory credit implications. An agreement over the coming weeks, which S&P Global Ratings still views as possible, would contain but not eradicate the credit impact," Alexandre Birry, S&P Global Ratings' Global Head of Credit Research and Insight, said.

"As diplomatic efforts in the Middle East become more drawn out, the duration of disrupted energy and shipping flows is increasingly shaping global credit conditions. The ceasefire will only alleviate credit pressure when it leads to a durable reopening of the Strait of Hormuz. Even then, the credit impact will not unwind immediately."

"As oil shortages persist, second and third order effects are becoming more pronounced, weighing on manufacturing activity, transportation, consumer confidence, and public finances. These dynamics are inherently nonlinear: Prolonged disruption, even without military escalation, materially increases the risk that a transitory shock evolves into a more persistent drag on growth and credit conditions. In this context, the effective duration of the disruption to the Strait of Hormuz remains the single most important variable for global credit risk," Birry said.

S&P's "base case" assumes the US and Iran reach an agreement easing the Strait of Hormuz blockade, allowing the resumption of meaningful oil and product flows, by the end of May without further significant damage to critical energy infrastructure.

"However, we expect any reopening to be fragile, with the risk of intermittent disruptions," Birry said.

"Moreover, even if the Strait were to open fully, oil and gas supply would take several months to return to normal, reflecting operational bottlenecks, damage repair, crew and vessel dislocation, and risk aversion across shipping and insurance markets. As a result, energy prices are likely to remain higher than before the conflict, even if the most acute phase of market stress fades."

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