Major Banks in New Zealand Defend Profit Margins Amidst Accusations of Exploitation, Citing Strong Competition and Global Trends
Recently, the major banks in New Zealand, which are also the largest banks in Australia, have found themselves under fire from the New Zealand competition regulator. The regulator claims that these banks have been exploiting their customers in New Zealand, leading to persistently high profits. However, the banks are fighting back, arguing that their profits are in line with other New Zealand companies and global lenders. They also maintain that their returns reflect the growth of the New Zealand economy, which heavily relies on their lending activities.
The accusation by the New Zealand Competition Commission (NZCC) last month sparked a heated debate, with the major banks rejecting the analysis put forth by the regulator. According to the banks, the NZCC’s analysis is overly simplified and misleading, and they believe that the New Zealand government is unjustly blaming them for the cost-of-living crisis faced by the Kiwi population.
In their submissions published by the NZCC on Thursday, ANZ, the largest bank in New Zealand, pointed out the presence of strong competition in the country’s personal banking services market. Similarly, BNZ (National Australia Bank’s subsidiary in New Zealand) and Westpac described the market as highly competitive. Commonwealth Bank’s ASB brand even used the term workably competitive to emphasize the level of competition in the industry.
The major banks highlighted the growing competition they face from Kiwibank, which is owned by the New Zealand government, as well as smaller lenders like TSB, Heartland, SBS, Cooperative, and Rabobank. Kiwibank currently holds 7.5 percent of the home loan market, and its move to full government ownership in 2022 will further enhance its access to capital, as noted by ASB. Additionally, the banks expect competition to rise from non-bank players, with Pepper Money recently acquiring HSBC’s mortgage book in the country.
The timing of this debate is significant, as New Zealand is heading into an election on October 14. Many New Zealanders have been struggling with high inflation, particularly in food and energy prices, along with higher interest rates that were raised earlier than in other countries by the Reserve Bank of New Zealand. These challenges prompted the government to initiate the inquiry into the banking sector.
Citing data from the Reserve Bank of New Zealand, the NZCC highlighted in August that the five-year average return on equity for the major banks in New Zealand is above that of selected large banks in most other countries, except Canada, and also surpasses the averages of both large and small banks in Australia. In fact, it is more than double the average of small banks in New Zealand.
This ongoing debate raises important questions about the relationship between major banks and the New Zealand economy. While the accusations of profiteering may resonate with some, the banks argue that their profits are justified given the competitive landscape and the country’s economic growth. It remains to be seen how this issue will impact the upcoming election and the subsequent regulatory measures that may be implemented.
