‘Fat, dumb and lazy’ banks get roasted in Parliament

Wednesday, 12 February 2025

Kent Duston from the Banking Reform Coalition tears into bank profits at the Finance and Expenditure select committee banking inquiry on Wednesday.

“Fat, dumb and lazy” banks earn twice the return they should, MPs running Parliament’s banking inquiry have been told.

Speaking at a hearing of the Finance and Expenditure select committee inquiry on Wednesday, Kent Duston from the Banking Reform Coalition said the big four Australian-owned banks were taking double the profits their shareholders would be willing to accept.

“The argument used by the Australian-owned banks is that their high profits fairly reflect the risks of doing business in New Zealand,” Duston said. “This is absolute nonsense. In fact, the banks are being paid for risks they’re not taking.”

That was because they were effectively government-guaranteed, he said.

He said a fair risk-return on shareholders’ capital invested in ANZ, Westpac, ASB and BNZ would be 5.5%.

“They are typically making between 11% and 12%, so they are twice as profitable as they should be,” he said.

Kent Duston from the Banking Reform Coalition ripped in the big four banks’ excess profits at the Finance and Expenditure select committee on Wednesday.

And because they were operating as an oligopoly, not colluding but responding to the same lack of competition, the big four banks had little incentive to innovate, which had led them to be “fat, dumb and lazy”, he said.

Duston, who was an executive at Telecom when the company was being split into Chorus and Spark, asked MPs to break up the big banks, by splitting them into retail and wholesale banking businesses.

He told MPs the banking sector was generating about $3.5 billion of excess profits each year that were not justified, as well as being a drag on the economy, inflicting deadweight losses of $6b to $10b on the economy every year by doing things like being less willing to lend to businesses.

“It is being earned by abuse of market power,” Duston said.

He told MPs not to heed bank executives’ attempts to justify their high profits.

“These banks are exceptionally profitable by international standards. The banks dispute this, of course. They like profits,” he said.

But actions taken by MPs that resulted in those profits coming down would not cause banks to up sticks and take their capital elsewhere, he said.

Before the Global Financial Crisis, banks made lower returns than they do today, Duston said.

He told MPs the big bank oligopoly was the result of decisions by the Reserve Bank Te Pūtea Matua, whose post-GFC capital settings required banks to hold much more capital on business loans than residential mortgages.

“The Reserve Bank has put in rules that have fuelled property bubbles, that has entrenched the profitability of the banks, and has made it very difficult for another set of new entrants to arrive,” Duston said.

Quoting 1970s comedy science fiction comedy The Hitchhiker’s Guide to the Galaxy, Duston told MPs the Commerce Commission’s proposals for injecting more competition into the banking sector, which it announced last year, were “mostly harmless” but would not do the job.

Simplicity chief executive Sam Stubbs called for banking sector reform at the Finance and Expenditure select committee banking inquiry on Wednesday.

Sam Stubbs, chief executive of KiwiSaver provider Simplicity, also called on MPs to take bold actions to inject competition into the banking sector.

Stubbs said KiwiSaver money could be used to capitalise Kiwibank, but he urged that the Government remain the majority owner of Kiwibank.

“For the last two decades, Kiwibank has been a one-armed boxer in a ring with four heavy weights,” Stubbs said.

Kiwibank’s existence had created the illusion of competition, he said.

While Duston estimated banking sector excess profits at $10 million a day, Stubbs put it at about $5m.

The Commerce Commission concluded last year that the big four, Australian-owned banks were operating as a ‘cosy oligopoly’.

Both told MPs that big banks’ ownership and control of Payments NZ, which operates the payment system, had hindered the growth of open banking in New Zealand.

“They’ve played the game. There have been lots of nice press releases, but where’s the beef? Where is the example of a well-capitalised disruptors in this market funded and supported by the banks?” Stubbs asked.

Promising fintech companies that could have emerged as the neo-banks that had sprung up in places like Australia and the United Kingdom had gone out of business, or been bought by banks without opposition from the Commerce Commission, Stubbs said.

That was why New Zealand’s payments system was in the “stone age” compared with other countries, Stubbs said.

Duston said that unlike other developed economies, New Zealand did not have instant payments. Instead, payments took about an hour to complete.

“That’s fairly similar to what we experience in North Korea,” he said.