How Australian are the 'Aussie' banks, really?

Saturday, 31 August 2024

The Commerce Commission calls them ‘major banks’, but many people call them ‘Aussie banks’; ANZ, ASB, BNZ and Westpac dominate the New Zealand banking sector.

ANALYSIS: Big banks. The major banks. The cosy oligopoly. The Aussie banks.

The four terms are being used interchangably as banking comes under intense political scrutiny.

But while is is hard to argue with the first three descriptors, the last is only partly accurate.

ANZ, ASB, BNZ and Westpac certainly are big, and they certainly are major (the term favoured by the Commerce Commission Te Komihana Tauhokohoko), holding around 85% to 90% of the assets (loans) of all registered banks in New Zealand.

And, according to the Commerce Commission, they are a cosy oligopoly, competing only sporadically and weakly with each other.

But though ANZ, ASB, BNZ and Westpac are all owned by Australian banking corporations, whose shares are traded on the Australian ASX market, there are tens of thousands of New Zealanders who own shares in one, or more of them, making them partly New Zealand-owned.

Partially Kiwi, partially global, mostly Aussie

The Commerce Commission’s report slams NZ's banking sector for poor competition. It calls for more capital for Kiwibank, faster open banking, and better consumer choice. Finance Minister Nicola Willis promises action to address these issues.

ANZ says it has 16,000 individual New Zealand shareholders.

Westpac has around 21,000 shareholders who live in New Zealand.

BNZ would not share its numbers, and ASB, though keen to do so, did not manage to release the number before this article was published.

And in addition to the individual shareholders, almost all of the 3.36 million people with KiwiSaver accounts will be in funds which own some of the shares in the Australian parent banks; ANZ, CBA (owner of ASB), NAB (owner of BNZ) and Westpac.

For example, the ASB Growth Fund, the largest of all the KiwiSaver funds with just under $6 billion invested through it by 161,000 people, has $109.5m invested in the shares of ANZ, Westpac, CBA and NAB.

As a result, a spokesperson for ANZ says: “Most New Zealanders either directly or indirectly own shares in ANZ.”

As former Reserve Bank Te Pūtea Matua governor Don Brash said in 2018: “All four of the big Aussie banks are publicly listed companies, and anybody is free to buy shares in them.”

And they have.

Global fund managers BlackRock, State Street and Vanguard, which are used by pension funds the world over, control 17% of the voting power at CBA, indicating their collective funds’ shareholdings in the bank. They own a similar share of ANZ’s, and Westpac’s and NAB’s.

Don’t mention the Kiwi shareholders

When ASB and its parent bank CBA announced its annual profit in August, CBA boasted the result showed it was “Generating value for shareholders and contributing to Australia's economy”, neglecting to mention its New Zealand-based shareholders.

It had, it bragged, paid A$3618 in fully-franked dividends related to the 2024 financial year for the average retail shareholder.

ASB bank used to publish figures of how many New Zealand-based shareholders it has, but no longer does so.

“We have over 830,000 shareholders with 76% of our shares Australian owned; additionally, we support over 13 million Australians indirectly through their superannuation holdings,” the bank said.

Vittoria Shortt, chief executive of ASB, said several years ago, she had the bank gather similar figures for its New Zealand-based shareholders to publicise on results day.

But, she said, no New Zealand media were inclined to publicise them.

The New Zealand shareholders of the Aussie banks are a minority, by number, though the dollar value of their holdings is not public.

ANZ’s 2023 annual report said it had 531,000 shareholders, so by number that 16,000 New Zealand shareholders represents a modest 3%. By contrast, 17% of ANZ’s group total income came from New Zealand.

Aussie banks, Kiwi depositors

In their bids to earn social licence for their large profits, some of the banks started publicised other figures a few years’ back; talking about how much tax they paid, how many people they employed, and also how much money they paid to their depositors.

Depositors do not own banks, like shareholders do. Instead, they are unsecured creditors.

The commission says around 65% of funding for the major banks comes from depositors.

Registered banks had $453b of deposits at the end of June, of which $418b were from New Zealanders and New Zealand institutions like businesses, local councils and central government.

Households’ share was $246b.

Westpac NZ chief Catherine McGrath said: “We support the economy by lending more than $100b to Kiwi homeowners, businesses, and farmers and growers. We also manage over $80b in deposits.”

Technically, they’re not Australian banks

In a technical sense, local banking regulation means the New Zealand Australian banks are incorporated locally, and must be able to operate independently from their parent banks.

As Brash put it in 2018: “I don’t worry at all that a very high proportion of our banking sector is owned abroad. What banks can do is fundamentally determined by the Reserve Bank.”

John Small, Commerce Commission chairperson, uses the moniker ‘major banks’ for the big four Australian-owned banks.

They benefit from an implied guarantee not only from the New Zealand government, which many believe would bail out a major bank in the name of preserving financial stability, but they also benefit from an implied guarantee from their parents.

It’s one of the reasons why they have a lower cost of funds, and are able to pay less to depositors and other funders, than smaller rival banks have to, according to the Commerce Commission.

“The major banks benefit from scale efficiencies from being subsidiaries of their Australian parent company,” the commission says.

“This includes savings relating to group strategy and investor relations generated from the Australian business. The banks may also benefit from group-wide investment and funding when access to wholesale markets is disrupted.”

Kiwi banks, but strategy from the head office?

That “group strategy” comment raises a question, which Brash cast in 2018 as: “Who really controls these big banks?”

For all their partial New Zealandness, the commission found the majors exhibited behaviour that could be construed as being directed from the Australian head offices of their parent banking groups, aimed at maximising dividends for shareholders.

“The major banks start by setting overall growth targets – often relatively modest ones expected to maintain profit levels given each other’s anticipated responses,” it reported.

“These targets are likely to incentivise the major banks to make offers that are just enough to achieve their growth objectives without prompting strong responses from rivals that might compromise their overall profitability,” it said.

The Banking Reform Coalition’s Kent Duston does not think the deadweight cost of exporting so much money to Australian bank head offices is balanced by the amount paid in dividends to New Zealand-based shareholders of those banks.

The return on equity for the New Zealand subsidiaries of Australian banks was slightly higher than their Australian parents, the commission found.

In other words, New Zealand bank customers are slightly over-contributing to the pot of profits from which dividends are paid.

Kent Duston from the Banking Reform Coalition says the excess profits generated in New Zealand are exported to Australia, calling the Australian-owned banks “obscenely profitable”.

Financial Markets Authority chief executive Rob Everett and Reserve Bank governor Adrian Orr launched a joint project for greater scrutuny of banks and insurers in response to the Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

“The excessive profiteering of the Australian-owned banks mean they are around twice as profitable as they should be, and the vast majority of the national treasure they extract from New Zealanders is exported to overseas shareholders,” he said.

Culturally, the Aussie banks have been Kiwi-ish

The Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry - which delivered its final report in 2019 - uncovered misconduct and abuse of customers.

It prompted the Reserve Bank and the Financial Markets Authority Te Mana Tātai Hokohoko to conduct a less high-profile probe. It was more of an invitation for banks to confess to wrongdoing.

While there were problems (underinvestment in systems, some modest mis-selling of insurance, some relatively modest overcharging, and a distinct slowness to make refunds to customers when they identified problems), no widespread abuses were identified.

It lead to claims that New Zealand subsidiaries of Aussie banks were culturally different to their Aussie parents.

But not all the cultural differences were positive, it has been noticed in recent years.

The New Zealand subsidiaries of Australian banks have been slower, for example, to build their digital banking capabilities, and to introduce some fraud protection technologies.

ANZ is advertising the arrival on these shores of fraud-reducing “dynamic” credit card CVC’s, a year after its parent company.

And while banks here are striving to roll out a “confirmation of payee” service here before the end of the year, ASB’s parent CBA has been running a scheme called Namecheck for more than a year. In its annual report last month, CBA said that had saved its customers A$410m in scam losses and accidentally miss-directed payments.