BNZ sees 'manageable outcome' from Christchurch earthquake related credit losses

By Gareth Vaughan

The Bank of New Zealand (BNZ) is yet to put numbers around its expected credit losses stemming from the February 22 Christchurch earthquake, CEO Andrew Thorburn says.

Speaking to interest.co.nz in a Double Shot interview, Thorburn said although BNZ hadn't yet come up with an estimate of its financial hit, it was expected to be a "manageable outcome."

"We don’t actually have a number at this point because what we’ve been doing is focusing on staff, customers, stabilisation," Thorburn said.

"That has been our priority really, to help the community. We’re now starting to think through in a multi faceted way what we call stress testing our book. Where do we think the stresses might be, to what degree, what would be the provisioning we’d need to make and that process has not yet been completed."

"I think we want to be considered about that and accurate. But whatever happens, I think the bank is strong and I think it will be a manageable outcome for the bank," Thorburn said.

He was speaking after rival Westpac yesterday became the first of the country's major banks to release specific figures on the financial impact it expects from the devastating earthquake. Westpac estimated credit losses of between NZ$30 million and NZ$100 million. Andrew Bowden, a Westpac Group investor relations spokesman, told interest.co.nz the bank had made the statement ostensibly because it raises money in international markets.

"We know it is going to be relatively expensive so (we have) put some sort of estimate out there so the market remains somewhat informed," Bowden said.

He declined to say what needed to happen for Westpac's ultimate credit losses to come in at the low end of the NZ$30 million to NZ$100 million range and what would happen if they came in at the top end.

"What we would typically do is look at past events of significant magnitude and have an estimate," Bowden said, noting Westpac had spoken to "a large number" of its Christchurch customers.

"(But) this is an event that's a little bit unprecedented," Bowden added, "so that's why we've got quite a wide range."

He said Westpac's focus had been on making sure people were safe and sorted and things were operating as normally as possible.

"We haven't spent a lot of time worrying about the individual provisions."

Last year Westpac, which includes the former Trust Bank Canterbury operations, said its costs related to the September 4 Christchurch earthquake were NZ$3.5 million.

'Cold reality is some businesses will close'

Meanwhile, Thorburn said BNZ has about 3,000 major business customers in Christchurch and its staff had phoned them all. The two key things the business customers need immediately are working capital support, which BNZ is "extending where appropriate" with large businesses able to borrow up to NZ$500,000 at 4.5% interest, and to get into their premises to access their information technology (IT) systems and payroll systems.

However the earthquake, which killed at least 166 people and Treasury estimates caused about NZ$15 billion of damage, would be the end of some firms.

"For some businesses that were struggling at the time, this is going to finish them," Thorburn said. "That is part of the cold reality that some businesses will close and not reopen. On the other hand there are some bigger businesses that have enough resources that have already got going again and then there’s a good chunk in the middle that need some support for a prolonged period. They are the ones that we’re really interested in helping because it’s going to be tough for them. They’ve got a viable business, they’re well run, but they’re really going to be hit in a cash flow sense for a period of time."

This latter group ranges from companies with perhaps five to 25 staff with annual turnover from NZ$2 million to perhaps NZ$10 million.

"They are critical businesses for Christchurch. They’re businesses that provide key services to the wider Christchurch business community so we need them to be up and running and viable as quickly as they can be," said Thorburn.

For this to happen there needed to be a "very close" working relationships between the Government, local Christchurch community and business.

"That’s going to be a test of how well this (recovery) gets executed, but I think the signs are positive," said Thorburn. "The lines of dialogue are open and I think the right questions are being asked."

* This article was first published in our email for paid subscribers this morning. See here for more details and to subscribe.