Published on 07/03/2023
By Sam Stubbs, MD and founder of Simplicity
In 2018, the owners of the four biggest banks in New Zealand were the subject of a public inquiry in Australia. How they made money (including charging dead people) made it an emperor's new clothes moment for the banking industry in Australia. But our politicians and regulators passed on asking for the same inquiry here, even though the big banks here were owned by the very companies under investigation in Australia.
Since then, the after-tax profits of the four biggest Australian-owned banks in New Zealand - ANZ, ASB, Bank of New Zealand and Westpac - have risen to over $6 billion. That’s over $16 million a day, $680,000 an hour, $11,000 a minute, $180 a second. And that’s after tax. Before-tax, the Aussie-owned banks made close to $10b in New Zealand last year. That’s $1950 per New Zealander, including children, at a time when Covid-19 and inflation have made living even more expensive. And $10b is well over five times the profit that supermarkets made last year. Yet supermarkets have already had a full Commerce Commission inquiry and banks haven’t.
But the pleas for a proper investigation won’t stop, with Monopoly Watch now calling for a market study into banking. It is headed up by Tex Edwards, the founder of 2degrees, and they played an important role in initiating the recent supermarket inquiry. And Monopoly Watch calling for a market study is hot on the heels of recent support by our Reserve Bank governor for a Commerce Commission inquiry into bank profits.
In this inquiry, some big questions need to be asked of banks.
The first is – why are we still waiting for open banking? We now lag far behind the OECD in doing anything meaningful to allow number portability and customer data rights. This stops new competitors from entering our market.
The second question is a fundamental issue of good governance. Should ex-politicians be allowed to be bank directors? While I have the highest respect for Sir John Key, he was chairing our biggest bank, and most profitable company, within a year of leaving politics. No politician, let alone an ex-prime minister should be allowed to do that. The OECD standard is to wait at least three years.
The third major question is what role the government should play in owning banks. By selling parts of Kiwibank to the ACC and NZ Super Fund, and then buying them back, successive governments have kept Kiwibank as a weakling in the market. Kiwibank has been, since its inception, a one-armed boxer in the ring with four Aussie heavyweights. And their mere presence in the market has allowed the Aussie-owned banks to maintain the fiction that it’s a competitive market. But their growing profits prove just the opposite. By selling parts of Kiwibank to the ACC and NZ Super Fund, and then buying them back, successive governments have kept Kiwibank as a weakling in the market. So a banking enquiry should ask - should the government get out of owning a bank, or beef up Kiwibank to beat up the Aussie competitors?
The fourth question is why the New Zealand operations of Australian-owned banks are consistently more profitable than their home market. Relative to incomes, Australian-owned banks have reliably made about 20% more from the average Kiwi customer than their Aussie equivalent. How is this possible, and why is this accepted by politicians and regulators?
And the fifth question is one Adrian Orr raised – why do banks get to privatise their profits, yet socialise their losses? If the taxpayer bails them out when they go bust, shouldn’t bank shareholders pay for that protection via lower profits? And with the bank deposit guarantee scheme coming in shortly, how can we be sure that the cost of this will be paid by the banks and not passed on to their customers?
And the last big question (and this is the big one) is - why do the big banks in New Zealand have some of the lowest cost-to-income ratios in the world, with some of the highest net margins? In plain English that means - how have they managed to slash costs so much, while jacking up prices? Anyone trying to find a bank branch, and trying to get service once you do, knows what that means.
In my own career in finance, I have seen successive governments spooked into inaction regarding bank inquiry and regulation. And to give Orr due credit, he is the only Reserve Bank governor I know to have asked the tough questions, hand out appropriate fines and censures, and (finally) ask that bank profits be properly investigated.
The after-tax profits of the four biggest Australian-owned banks in New Zealand - ANZ, ASB, Bank of New Zealand and Westpac - have risen to over $6 billion.
Politicians have shown much less spine over the years. It’s because, just as they start responding to public disgust over big bank profits and talking tough, the Aussie banks make noises about leaving New Zealand. But they never do, because banking in New Zealand is a gravy train that keeps on giving. But that’s no excuse for our elected officials. It’s time for a proper inquiry into our most profitable industry - by far.
And if politicians need a final reason for an inquiry, let’s look at how generous our big banks were during Cyclone Gabrielle. From reading their press releases, the ANZ, ASB, BNZ and Westpac announced a combined $12.5 million in donations. It sounds a lot, but it’s only 0.04% of their annualised 2022 revenue. That's the equivalent of an average Kiwi on a $50,000 salary giving $5. Hardly great generosity from four of our most profitable companies, in our hour of need.
Orr is right. We need a proper Commerce Commission inquiry into bank profits.
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