(14 August 2023 – New Zealand) The “persistently high profitability” of Australia’s banks operating in New Zealand will be under increased scrutiny after the country’s competition regulator drew attention to the issue as it prepares for a major inquiry.
The AFR is reporting Australia’s four largest banks have $NZ300 billion ($278 billion) of home loans in New Zealand, representing 86 percent of the market. In a preliminary issues paper published on Thursday, the Commerce Commission said its initial view was the banks “persistently derive higher returns on equity than the rest of the New Zealand banking sector”.
The Commerce Commission was directed to launch an inquiry by Finance Minister Grant Robertson and Commerce Minister Duncan Webb, with the cabinet referral identifying “high and increasing bank sector profitability as suggestive of possible competition problems”.
At the time, critics of the inquiry warned politicians were trying to assign blame for the surging cost of living in New Zealand, where annual inflation is tracking at 6 percent. The government faces an election in October.
A February report by Treasury – responding to a request from the government for advice about whether banks in the country were generating windfall profits – “ultimately concluded that there was no clear evidence that bank profitability constituted a windfall and did not recommend a windfall tax”, the commission’s preliminary report read.
Their investigations found nominal bank profits in New Zealand last year were the highest on record and had trended upwards over three decades, but when measured by return on equity and return on assets, profitability was near the average for the 2013 to 2022 period.
The commission said New Zealand had not seen similar levels of digital disruption compared to global banking markets and “we propose to explore trends in innovation and new service development in the sector”.