Banks make more money out of Kiwis than Australia

Thursday, 17 May 2018

ANZ makes more per capita from Kiwis than any big Australian bank makes from Australian customers.

New Zealand customers are delivering better profits for the big banks than their counterparts in Australia.

An analysis of data released to Stuff by the Reserve Bank shows that compared to gross domestic profit (GDP), the big four Australian banks are 26 per cent more profitable in New Zealand than they are in Australia.

ANZ makes more per capita from New Zealanders, in local currency, than any big bank in Australia makes from Australian customers.

The banks have reported a string of record profits in New Zealand and ANZ is on track to become the country's first $2 billion-a-year bank in the near future.

* New Zealand banks pulled in record combined profit in 2017

* Banks told: Front up with evidence

Sam Stubbs: 'If good behaviour means more profit, let's prove it.'

* Australian banking review is overdue in NZ too**

Last year, New Zealand banks reported a combined $5.19b in profits, up just over $355 million year-on-year.

New Reserve Bank governor Adrian Orr said he was perplexed by the ongoing strength in bank profits

'It's highly competitive, yet the rates of return on capital remain very solid. The current explanations are technology is lowering their costs significantly,' he said.

Orr said that when he started his career in banking, the cost-to-income ratio, also sometimes called the efficiency ratio, was around 120 per cent.

Now banks achieve cost-to-income ratios of 40 per cent and aim for 30 per cent.

'[Technology] is a big, big game-changer.'

Checks on whether bank profits were sustainable would form a significant part of the 'culture check' being undertaken by the Reserve Bank and Financial Markets Authority, Orr said.

Adrian Orr: 'It's highly competitive, yet the rates of return on capital remain very solid.'

A Royal Commission of Inquiry into Misconduct in the Banking, Superannuation and Financial Services Industry in Australia revealed serious misconduct by New Zealand banks' parent companies.

That prompted New Zealand regulators to demand more information from New Zealand banks, which they had until May 18 to deliver.

'I think you've always got to be sure that they are competing properly and they are behaving responsibly,' Orr said.

'If they're making profits, good on them, but let's make sure they're long-term sustainable profits and there's true competition in the markets.'

Sam Stubbs, founder of competing KiwiSaver provider Simplicity, said the difference in profitability was another reason why an inquiry should happen here.

'Are they saying that the ratbag Aussies this made much [in profits] and yet the lily-white New Zealanders have made more? If good behaviour means more profit, let's prove it.'

John Kensington, head of banking and finance at KPMG, said Australia was a more competitive market for banks, with higher financial literacy and customers more willing to deal aggressively with banks.

He said a comparison of profit to GDP would indicate more about the strength of each country's economy. Australia had been through a relatively soft economic period while New Zealand had performed better.

Banks' interest margin – the difference in what they pay for funds compared to what they charge for loans – fell from an average of 2.17 per cent to 2.08 per cent, between 2016 and 2017.

New Zealand's interest margins are higher than Australia's.

New Zealanders also pay more for products such as credit card insurance. Shops have complained about New Zealand's interchange fees, which Retail NZ said were higher than in Australia and the UK.

Claire Matthews, a banking expert at Massey University, said the banks in New Zealand were a bigger part of the overall economy than they were in Australia.

'This reflects the greater diversity in the Australian economy.'

Finance and expenditure select committee chairman Michael Wood said this week that asking bank bosses to appear before MPs was an 'open and live option' to help shore up confidence that financial institutions were behaving ethically.