NZ banks ‘some of the most profitable in the world’

Thursday, 19 October 2023

New Zealand’s four largest banks are all owned by Australian banks.

New Zealand’s banks are only beaten for profitability by banks in Canada, global credit ratings company S&P Global Ratings says.

Over the past five years, the average annual return on equity, which is a measure of profitability, was 12.5% for New Zealand’s big banks, topped only by Canadian banks, according to its analysis.

Canadian banks only topped the profitability charts with a 15.2% return on equity because they had highly-profitable wealth management businesses that New Zealand banks lacked, S&P banking analyst Lisa Barrett said.

Barrett’s data showed Australian banks’ return on equity was 10.6%.

Her comments come as the Commerce Commission conducts a market review into competition in the retail banking market in response to concerns over their profits.

Commerce Commission probe into retail banking competition

“One of the drivers for the inquiry has been around the profitability of the major banks, and yes, let’s face it, New Zealand banks are profitable,” Barrett said.

“Really, they are some of the most profitable banks in the world.”

But Barrett sought to defend the banks during an analyst briefing on Tuesday, suggesting their profitability was partly the result of subsidies provided by their Australian parent banks.

“Part of the reason for the New Zealand major banks’ high profitability is the support they receive from their larger Australian parents, particularly around things like technology and cyber risk management.”

That meant they had lower costs, making them some of the most efficient banks in the world, she said.

Only banks in Norway had better cost-to-income ratios than New Zealand’s banks, Barrett said.

ANZ, ASB, Westpac and the Bank of New Zealand (BNZ) are all owned by Australian banks.

They have this year ratcheted up the margins they make between the interest they pay to depositors and other funders, and the rates they charge their borrowers, Barrett’s analysis showed.

Profitable banks were fundamentally a good thing, she said.

Tex Edwards, founder of 2degrees and committed anti-monopolist, has called for ANZ and ASB to be broken up.

But Tex Edwards, founder of Monopoly Watch, has called for ANZ and ASB to be broken up to improve competition in the banking market.

In a submission to the competition watchdog’s market study into the banking industry, the 2degrees founder claimed the “average Kiwi household” would lose out between $450,000 and $1m over their lifetimes because of excess margins paid to the Australian-owned banks.

“Failed legislation in the 1980s and early ‘90s caused New Zealand savings banks to be sold for virtually nothing to Aussies. The results are haunting Kiwi regulators 30 years later,” he said.