Chief executive of ANZ New Zealand, Antonia Watson says profitable banks are enablers of a successful economy and its return on capital is the minimum required to attract investment.
The leader of the country’s largest bank faced questions from a joint session of Parliament’s Finance & Expenditure and Primary Production committees on Wednesday morning.
It was the first hearing in a banking inquiry which will run for the next month and scrutinize the sector’s profitability and treatment of rural customers.
National Party MP Catherine Wedd asked Watson how she could justify pulling in a $2 billion profit when customers, farmers, and homeowners were doing it “really, really tough”.
She held up a chart from the Commerce Commission’s banking study which showed New Zealand banks were more profitable than other comparable ones overseas.
Watson said the banks which were not in the top quarter of profitability were often ones that had experienced deep economic crises and weren’t covering their cost of capital.
“Do we want to compare ourselves to their rung of countries in the middle who have experienced banking crises, whose banks are trading at below their book value?” She asked.
“We are a big importer of capital into NZ, which we need to grow the economy, we need to provide our shareholders a fair return on that capital … to be worth investing here”.
Another National Party MP, Ryan Hamilton, asked whether ANZ had made any concessions to share the burden of high interest rates that were being experienced by households.
Watson pointed to support offered to communities after recent natural disasters, but said the bank wasn’t able to insulate households from higher interest rates.
“I think you're asking if we should not have raised interest rates over the time the interest rates have been raised by the Reserve Bank. If we had done that [inflation would not have fallen],” she said.
It is also true that the bank would have been able to operate if it didn’t lift its rate in sync with the central bank and wholesale markets. However, it could have slimmed its margins slightly.
Milking farmers
Members of the Primary Production Committee also questioned Watson, and ANZ’s board chairman Scott St John, about the perception farmers were being poorly treated by big banks.
Labour MP Damien O’Connor asked St John—who recently finished a long stint at Fonterra—whether he was now “milking farmers” instead of cows.
“Because with such a high level of debt, the interest rates you are charging, and the inflexibility that we hear from farmers; do you think you have perhaps set this up?”
Suze Redmayne, a National Party MP from Rangitīkei, said one in five farmers claimed banks weren’t allowing them to structure their debt in the most efficient way.
Watson said staff were highly trained to correctly structure debt and did not encourage farmers to use overdraft facilities, which charge higher interest rates, for capital expenditure
Excess profit tax
Chlöe Swarbrick, the Green Party co-leader, asked about a Commerce Commission allegation banks were quick to increase interest rates for borrowers and slow to lower them.
Rates go “up like a rocket and down like a feather”, she said, which was also an allegation leveled against petrol retailers during a market study in 2019.
Watson disagreed with this finding in the Commission's report. She said ANZ had been “very quick to respond” to the last two cuts to the Official Cash Rate, and would never hold off adjusting rates just to make more profit.
The last question came from FEC chairman Stuart Smith who brought up Watson’s recent public support for a possible extension of capital gains tax, and suggested a tax on banks instead.
“I noticed you've had some comments on alternative revenue streams for the Government … did you consider a corporation tax surcharge on large bank profits, as is the case in the UK?”
Watson said “excess profit” taxes around the world had only been implemented when there was an event which had caused unusually high returns.
“I think our submission and what we've talked about today has made it clear that we don't make excess profits. We are roundabout at our cost of capital — which is the minimum an investor would choose to earn to keep their money in New Zealand,” she said.
After the hearing, Interest.co.nz asked Watson whether this question was intended to be a threat but she did not think so.
19 Comments
“We are a big importer of capital into NZ, which we need to grow the economy, we need to provide our shareholders a fair return on that capital … to be worth investing here”.
Really? ANZ does not really 'import capital' into NZ to grow the economy. Their primary business is credit creation for the Ponzi. They have their Tier 1 and 2 capital as well as their capital ratio requirements.
From what I understand, ANZ and the Aussie banks don't rely on wholesale funding anymore - for ex, sourced from Japanese financial institutions. Up to the GFC they did. But it was not for core funding, it was to improve their profitability.
No. But it was not the question I was posing. ANZ is making out like a bandit in NZ primarily because they can create credit more or less out of thin air. F'more, they implicitly know that the NZ taxpayer has their back. For Watson to suggest that they stump up capital like they're some kind of financial intermediary is deceptive. She's partly playing on the ignorance of the politicians.
Thank you JC. I pinged on that comment too. I would like to know what she means by "big importer of capital" and I also note that she implies it is owned by the bank as they (need to provide our shareholders a fair return on that capital … to be worth investing here" . what do they identify is a "fair return on capital"?
She also stated "profitable banks are enablers of a successful economy". I agree they need to be profitable. The issue is the degree. But also how much do they really "enable" or by focusing on housing are they in reality a hindrance?
Profitable banks are a big plus for sure. However, ANZ is playing dumb here by insinuating public attention to the magnitude of bank profits in NZ means we want loss-making banks. It is a question of fairness and what a risk-weighted profitability buffer should be.
The big-4 banks earned a 5pp premium ROE in NZ (~22%) compared to Australia (17%) between 2000 and 2021. 17% is still a good chunk of profitability and if we had the banks had earned the same ROE here as Aussie, it would amount to ~$300m more in the hands of borrowers and deposit holders in 2021 alone.
I raised that as the reason too when I first heard about it. I think a capital gains tax would be the least effective way of 'taxing capital'. As such a much better option for anyone wanting to grow a loan book.
Bank: Look over here MP's we're helping you get an easy win by making a CGT more palatable to the voters...
Have you not noticed the Banks, the RBNZ, the politicians have all been in a blame shifting game the last few years?
They were all on the same page demanding hardship from the masses, and now their all virtue signalling, trying to deflect their contribution to the mess they instigated.
They've been milking us all for years but the debt junkies and addicts keep choosing to inject more.
Personally, I reckon those tax dollars wouldn't just vanish in thin air if banks made less profits. Borrowers and deposit holders paying hundreds of millions less to banks each year would spend it elsewhere in the economy and the government of the day could rake in even more than the $830m in taxes as a result.
That being said, let's assume our policymakers are too stupid enough to understand that. Perhaps someone at Treasury could crunch the numbers on the damage high costs are doing to our productive economy and resultant welfare costs as a result of the government not bringing these oligopolies back into line.
National Party MP Catherine Wedd asked Watson how she could justify pulling in a $2 billion profit when customers, farmers, and homeowners were doing it “really, really tough”.
Useless. Her party (amongst others) thought it was a good idea to put (and leave) credit creation in the hands of private entities and were more than happy to talk up the economy when really all they were doing was talking up debt.
Not happy - setup a bank and indulge in the excess profits. The reality is no one is banging down the door to enter the market.
commodity trading businesses are prone to large swings in returns, both good and bad. Note Alliance meat company last few years is that the banks fault? and they don’t ask for more interest when you are making lots.
When 20% or so are unhappy 80% are happy or fine. Managing and understanding risk is not a strong suit of many NZ businesses.
How much risk do you want your parents and grandparents to be exposed to with their term deposits?
Nobody - including Dan - has yet asked the bigger question?
And the question is:
Can current'form farming be practiced ex fossil energy input?
And the answer is - drumroll - NO.
So how long does it go, and how long can banks rentier off the fossil rentiers?
Unasked.
The answer is - probably less than a decade, certainly less than two.
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