Reserve Bank needs to promote banking competition after big 4 made more profit in 4yrs after crisis than before it, Green Party says; Want Kiwibank capital injection

New Reserve Bank Governor Graeme Wheeler needs to promote more competition in the banking sector, after Parliamentary research showed the big four banks made more pre-tax profits in the four years since 2008 than before it, the Green Party says.

In comparison, the research by the Parliamentary Library showed pre-tax profits made by all New Zealand industries were down 15% in the last four years on the four years before 2008, going on the Statistics New Zealand Annual Enterprise Survey 'surplus before income' tax figures.

However, the research also shows the big four banks also paid more tax in the 2008-11 period than in 2004-2007, and 'net profit after tax and discontinued operations' was down in the latter period.

And the New Zealand Bankers Association says the fact customers are currently able to haggle down mortgage rates with the threat of switching banks showed there was competition in the sector.

Margins on floating rate loans were also larger than on fixed rates - most borrowers had been on fixed rate loans in the 2004-07 period, while falling floating rates since the GFC saw that switch to most being on floating rates in the 2008-11 period.

'Need more competition'

The Green Party said the government should inject more capital into Kiwibank, to give the state-owned bank better ability to compete against the big four Aussie-owned banks, ANZ National, BNZ, ASB and Westpac.

“Outgoing Reserve Bank governor Alan Bollard last week admitted that New Zealand's big four Australian-owned banks earn more out of New Zealand than banks in most other countries,” Green Party Co-leader Russel Norman said.

“His complacency is astounding, for the excess profits banks are making are simply damaging the rest of the New Zealand economy and contributing to our number one problem – a high and persistent current account deficit,” Norman said.

“Parliamentary research released today shows that the Global Financial Crisis has barely affected the profitability of the big four Australian banks, with three of the four reporting record profits in the last financial year,” he said.

[Kiwibank also recently reported record annual profit].

“For New Zealand industry, the Global Financial Crisis has hit our private sector severely, reducing profits by 15 percent overall in the years immediately following," Norman said.

“The challenge for the new governor of the Reserve Bank, Graeme Wheeler, will be to promote competitive behaviour in our banking sector so that the rest of the economy isn’t suffering due to excessive profit-taking,” he said.

“The challenge for the Government is to build up our New Zealand-owned banks to stem the flow of profits offshore.

“Currently, New Zealand-owned banks make up only six percent of our banking sector.”

The Green Party said increased competition in the banking sector could be promoted by strengthening Kiwibank and other New Zealand-owned banks.

“A strong Kiwibank is an integral part of a smart, green economy,” Norman said.

“By injecting capital into Kiwibank and allowing it, in time, to become the Government’s banker, we can increase its capacity to compete fairly with the much bigger Australian banks,” he said.

“Kiwibank can also be the retail arm of our proposed default KiwiSaver provider.

“The banking sector is the lifeblood of the New Zealand economy. It’s important we get it right so that all businesses can prosper, not just the big four foreign-owned banks.”

'The competition's there'

New Zealand Bankers Association CEO Kirk Hope told interest.co.nz that there was a high level of competition between New Zealand banks.

Low levels of lending growth meant banks were increasingly fighting for others' customers, by offering discounts to rates.

“Back in 2010 we implemented bank switching rules, making the environment more competitive by making it easier to switch banks," Hope said.

Meanwhile, in the earlier period looked at by the research, 85-90% of mortgage customers would have been on fixed-rate loans.

"That has really shifted around particularly in the last two to three years. Floating rate loans have been cheaper for customers, but there’s more margin for banks," Hope said.

And with the Green Party calling for changes to stop profits flowing offshore, Hope said in that case people needed to look at the after-tax profit figures, not pre-tax, "because of course tax stays in New Zealand."

"If you look at those two periods, post-tax profits are actually lower than the pre-GFC number," he said.

Banks in New Zealand also contributed around NZ$6 billion to the economy each year via their own operating expenses – mostly wages to over 25,000 employees – and taxes paid in New Zealand.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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35 Comments

At the end of the day we all individually hold the ultimate power.  We can choose to bank with the very fine local banks, which have been proven by multiple surveys to offer superior service; or we can continue with foreign owned banks that offer inferior service and siphon about $2 billion per year overseas in profit.  If there was more demand for locally owned banks, more would develop.  It is up to all of us individually, so don't complain, just change banks.
The second point is that, this article reveals that as industrial profits drop, banking profits are rising.  Some time ago this site described how banking profits in the USA had risen to something approaching 50% of all company profits. (An incredibly disturbing figure especially when they appear to be the source of the GFC)   Clearly we are following this trend.  The function of the banking system boils down to the movement of money between different parties.  The growth of technology should have reduced their costs and therefore footprint in an economy.  Their growth suggests that they are capturing more of the ecomomy than is healthy or warranted.

Chris-M is absolutely dead correct. Do what our familt did, walk down the street to the SBS and start your account there. There is Kiwi, albeit more socialsim, PSIS, and ther TSB. You dont have to legislate, just support the alternatve. But Red Russell would natuionalise all banks if he got in power. 

We started up accounts at the Cooperative Bank before the ANZ / National announcement.  Autopayments etc are just about sorted, we will cancel our National Bank accounts shortly.  A little bit of patriotism might help a country quite a lot.  Cheers

good idea .
lets pour money into kiwibank so then we have 5 big banks taking all the profit.
norman is nothing but a red lurking in a tinge of green.

He's a watermelon man , then ! ..... interesting that in semi-capitalist nations lots of folks have the luxury of  toying with the utopic dream of socialsim ..... but in socialist states no ordinary citizen considers themselves blessed , compared to the decadent morally corrupt capitalist hyenas ...

Fundamentally he is correct, The NZ bank sector is not a competitive free market. So our choice as a country is to.
a. Do nothing - the current choice
b. Ask the OZ banks to break up into smaller bits- ie reverse the 20+ years of consolidation they have been allowed to undertake.
c. Bulk up NZ based competitors- move government and local government business to more players- eg stop Westpac having a clear run on Government business
d. Get more internet based banks operating here
c. Decide that the industry is not a competitive free market and regulate them to bits
The point is that this National Government has absolutely no interest at all in freemarkets and competition. They are locked into a Soviet style efficiency mentality completely missing the point that effeiciency is a false goal, it is meaningless, it is trying to explain the world as a simple machine with inputs and outputs. Free markets and competition are only actually any good at one simple amzing thing.
Generating vast numbers of expepiriments - the 1000s of companies out their are all experiments, continually trying, failing, starting, stopping, testing the boundrys. But they are not efficient.
The way to soak up underutilised labour, land , expertise is to let free markets operate, let competition have a go. The very fact of the 'inefficiency' of capitalism actually does this. 
The government needs to do one simple thing - have a commerce commision that actually understands real competition and free markets- apply a simple test.
Does this sector look and fee similar to the hairdressing and coffee markets- if not then it is probably not a real competitive market. So do something about it. Creative destruction works wonders for realeasing great capitalists.
Most industries end up completely captured by a feww dominant players that are very hard to move- why should they. Capitalists hate competition- its hard work for little reward.
 

Doesn't the current neoliberal government still have wholesale funding guarantees  outstanding to banks - crony capitalism or communism? You tell me. 

Crony capitalism !

Yep. Socialism for the entitled.

Yes Crony Capitalism with vested interests.
Both Commie and Capitalist have covert agendas, the Capitalist spends more time (spin) and money protecting the agenda , The Communist shuts down any line of communication then injects a healthy dose of propaganda .
Interestingly regardless of ideology , the Human condition in regard to power ,control and greed is the common thread.
 I was just sitting here thinking ,one's going to grimmace and stab you in the front, the others going to smile and stab you in the back.

Yep. I had to get bandages for both sides after being stretchered out from some of my of worst bad bond trading deals.

Crony Capitalism, Socialism, Corporatocracy  - Well I know what it should really be called !!!!
 
http://www.etymonline.com/index.php?term=
 
And here's the treatment - apparently it's quite simple.
 
http://library.thinkquest.org/26618/en-med-8.2.htm

i remember the days of the bank of new south wales,commercial bank of australia,countrywide bank and a few others now all gone.swallowed up by even bigger banks
i fear the same will happern to heartland if granted banking registration.
at least in that case the shareholders will do nicely

The banks seem to be competing for the type of customer who is prepared to shop around, but for the existing customer that doesn't shop around they are ripping them off and hoping they don't leave. Almost all banks will give you 5.4% floating or lower if you ask, yet none of them are advertising that as they would have to cut the rate of their existing customers and make less profit. In a truely competitive environment, at least one of the banks would have advertised a 5.4% floating rate by now.

On the one hand I am glad to finally see a Green press release that does not simply propose more tax as its solution.  Unless of course he means to incease taxation for the purpose of giving it to Kiwi Bank.
 
On the other hand the muddy thinking above doesn't inspire much confidence.
 
Firstly, an ex-governor might be allowed a certain level of satisfaction that while much of the world's banking system imploded the one he oversaw did okay (in comparison).  To read that as complacency is to mis-read it in my opinion.
 
Secondly, Dr Bollard was not keeping banks profits a secret so the idea that "he admitted it" is quite misleading and suggestive of movie plot style conspiracy.  For a man with a PhD it's an intellectually lazy thing to do.
 
Thirdly, there is something quite wonky about the implication that state owned banking creates competition in any kind of healthy way.  In practice captialist competition and communism are mutually exclusive.
 
Fourthly, the only big idea here is a state owned bank.  But the economic track record of governments in business is extremely poor so why would it be different in NZ?
 

Updated with comments from the NZ Bankers Association

 What about more Libor...? why can't we have our own libor...There's BBALibor, we could have BaaLibor or chatter among sheep...
I overheard a Banker say......."I think  Banking competition is so overrated"...........?
 What about pointed sticks..!! ? 

..... we endured 9 years of Libor .....  screw going back to that ....

GBH....are you not enduring at the moment...? I am confused as to Gillard's position...? was she rolled ,has there been a coup..?
No No GBH, you my good man are exposed for your political masochism, once more, firmly under the Womans whip...... Beat me Julia ,thrash me, gag me, while Swannie takes some pictures......?....eh..?  
 Now ...What about pointed sticks...? 

......  if you reckon Kiwi politics are a complete shamozzle ..... what about Gillard & Abbott ! ... Try them for size , me old china ..... at least  Joe Hockey adds some light relief , in a Gerry Brownlee sort of way ....
 
$A 350 billion they're spending annually ....... up from $A 150 billion a decade ago !

 GBH, I think you'll find that'll come down by a 100bill or so when they cancel cocktail evenings for visiting Chinese investors and Communist  (dignitaries).?.....hey that's almost a contradiction in terms .

GBH is your name not Marcus ????
 
Cause ..........anyone who thinks iPads will continue to pop out of their parents' arse indefinitely have a rude wake-up call just around the corner.

Read more: http://www.smh.com.au/business/generation-u-about-to-find-out-ipads-dont-grow-on-trees-20121005-274p4.html#ixzz28TVtkyJh

 

 

Our were one of those infamous Welsh forwards...

 

.... if anything other than iPads is dropping out of your arse , try these pads on for size ..
 www.adultdiapers.org/  ....... your legs will be as dry as a dingo's bum , Henry ,....  100 % guaranteed to be leak free ( unlike Tom Jones ) ......there's no tell-tale " rustle " to give you away , no one will know , it'll be our little secret ..... just you , Gummy , and the entire interest.co.nz universe ...

didn't you forgot the A nitrate..
 - but pre typing next: Click:
 
One::
http://www.youtube.com/watch?feature=player_embedded&v=I3AKiWGawGs#
and
ex above:
The legacy of all this is that there are people who didn't grow up in the debt boom and there are people who did and although there are obviously many people who grew up in the debt boom without sponging off the equity in their parent's house, without having their parents pay their mobile bill, without taking the cost of the internet for granted, without moving out, without paying rent, without paying for their first cars, without complaining their free car was beneath them, without having to earn their own money, without getting everything they wanted without effort, without being arrogant towards their employer, without disrespecting older people, without being arrogant, there are clearly many that did and were.
That's fine, but those recent generations have created a bit of an issue when my kids go looking for a job, because courtesy of the spongers that have recently gone before them when my kids present themselves for employment to someone who cut cress for eight hours a day for eight weeks in their summer holiday instead of lying on a beach burning holes in their parents' internet and mobile account, that person sees my kids as having F'wit tattooed across their forehead and as card-carrying members of Generation ''Useless''.
 

Perhaps the Greens could advocate for Kiwibank to be the default bank for benefit payments, or even the compulsory bank for benefit payments? They are an obvious fit for government transfer payments like this, and it would keep the money 'in-house' given the government owns the bank.

Good afternoon mortgage serfs from the golden sands of Kaanapali Beach ... I can feel it cascading through my toes,  as I type away to you all...... deelitefull !
 
How is it "down there" in the land of the "greatest bank profiits per capita" in the western werld :) ... ah true bliss !!
 
What is this chaps and chapesses ? ... I hear from those annoying,  pesky Greens, from their hideout in the native bush, in some far flung outpost on the Coromandel, that an "Ash-tray-lian", a Mr R. Norman is stirring the pot .... how can he even suggest that the "BEEG 4" Ash-tray-lian banks are making too much profit ! 
 
This is my "baguette and butter", these beautiful  Ash-tray-lian bank profits ! how dare he suggest "competition"!! .. ..this will lessen my net income and I will have to downgrade (dare I say that word !!) the Aston Martin DBS to an Aston Martin Rapide ...oh the embarrassment of it all !! It brings tears to my eyes.
 
This will NOT do !! .. so back to work,  so you can get out there and buy some of that fine,  "prestige" Auckland real estate for the "most discerning" of tastes... and keep my truly good friends, the banks all tickety-boo and in "profit maximisation mode" !!
 
I think I need to have a quiet G & T to calm my nerves ..... thank you Mr R. Norman,  but you plight will fall on "deaf ears" .. is that correct Mr J. Key :)
 
Waiter !!
 
 

Mr.J Key's in Hollywood at the mo Champers old thing....attending a debreifing of Biggest dot .Loser or something, at least ,I hear that was it's covert name .....Mr Norman is trying desperatley hard to do Mr Shearers job as Mr Shearer has a few problems in the transparency dept presently.........although Mr Normans pleas had some of the sting removed when asking Mr Wheedler to climb a tree and feel the love or somesuch in order to convey his message approriately. 
 Anyhoo great to see you in fine fettle...have a G+T on Me and enjoy your day.

Manged to get a place to crash did, we Charlie?
Watch out for the land crabs. They are eveywhere, Nip Nip Nip Nip Nip
It's a hard life.
 

Did Mr. Bollard just admitted he was a wimp and useless when he was the Reserve Bank main man. Don't get me wrong here, I'm his number fan and I always look forward for his announcements, MPS and OCR review.
This statement sums it all and i am still in shock.
“Outgoing Reserve Bank governor Alan Bollard last week admitted that New Zealand's big four Australian-owned banks earn more out of New Zealand than banks in most other countries,” Green Party Co-leader Russel Norman said.
“His complacency is astounding, for the excess profits banks are making are simply damaging the rest of the New Zealand economy and contributing to our number one problem – a high and persistent current account deficit,” Norman said
We knew before his mouth is shut but what we did not know until recently  is that both his feet and arms are tied down tightly as well, it just makes you wonder why? Anyway,  this is simply just " A chaprter in his upcoming Autobiography as the RBNZ boss".
Well, i guess goodluck and hope this chapter taught you something that you can use on your new endeavor.
 

Personally, I'd far sooner have a competitive big four (and they damn well are, have you tried getting them into a compeitive tender) making very good returns, than having my bank producing headlines such as these:
 
Bank of Queensland signals first Australian bank FY loss since 1992
 
Christ, Australia is one of the less affected countries to date - there's no way in hell that I would bank with a minnow for patriotic reasons, or in some mistaken belief that I would be increasing bank competition. The reason that bank profits for the majors are still large, is because NZ hasn't fallen over, bad debts are modest, and growth has continued, be it at lesser levels, And I well remember the BNZ failure that tax payers had to bail-out big time, and then sell off for a song. Give me banks making money and able to survive down turns any day. Dumb strategy Greens, but since when have I heard anything economically sensible come from you ?
 
 
 

This is unadulterated BS! I sat in a conference many years ago run by the RBNZ. The upshot was that they wanted the finance sector to disappear. They couldn't care a less if the market ended up with a few big players. In fact this is what the end game was. Participants argued that we would end up with no competion, that creativity would be stiffled, and that profits rather than be retained in nz would head offshore. Hey guess what folks that is exactly what's happened. Now investors are moaning because there is no competion, and that TD rates are paltry. What do they expect? Of course banks are going to maximize there margins, they have no one there to keep them honest.

Dates? Names? Location? Speakers?

Kane, please enlighten me, what aspect of the NZ banking system isn't competitive ?  And please provide me with a similar type country that you'd like our lot to emulate so that I can study your comments further ,....tks

Agree.
Walk into a Bank at moment and se how much compedition there is for your mortgage
Banks are crawling over each other to get your business and has been the most compeditive I have ever seen it. Cashbacks., discounted rates, interbank bank switching processes, preloaded credit cards, I-Pads etc.
Look at the compedition to get National Bank clients.
What exactly do some people want or define as compedition?