New lending virtually stopped – finance and lease companies

Finance and leasing companies say new lending in New Zealand has virtually stopped since the Government introduced COVID-19 alert levels to counter the spread of the coronavirus.

That’s what the Financial Services Federation (FSF) has learnt from a survey of its members, finance and leasing companies operating in New Zealand.

FSF executive director, Lyn McMorran, says its members are instead focusing on helping individuals and small businesses affected financially by the lockdowns.

She says those effects are expected to worsen as wage subsidies run out and companies are “forced to make some tough decisions.”

FSF members have been “hugely responsive” in helping customers in urgent financial stress, whether it be changing to interest-only payments; introducing a payment deferral period; lowering payment amounts and extending the term of the loan, McMorran says.

They made 3700 loan variations in the first fortnight of lockdown alone, and 5843 in the second.

“FSF has been pleased with Government’s willingness to listen about what needs to change to empower the sector to do all it can to help borrowers…and is hopeful for an outcome that will benefit borrowers sooner rather than later.”

She predicts the financial effects of COVID-19 will most resemble the Great Depression that followed the 1929 stock market crash.

“While this situation is like nothing we have seen before, I think if you compare it to some of the crises we have had in the past 100 years, the Depression, the 1987 Share Market Crash, and Global Financial Crisis, it most closely reflects the Depression.”

Unemployment reached 6.8% during the GFC, 11% in the 1987 crash, and 20% during the Depression. “This time, predicted rates are anywhere between 11% and 30%.

“Just like the Depression, COVID-19 is also a worldwide situation affecting everyone from all walks of life, and not just those in the sharemarket or property investment.

“The issue we are all dealing with right now is the great unknown, as none of us have lived through anything like this before.”