Westpac NZ CEO and Chairwoman quizzed about poor customer satisfaction and controversial returns comparison at parliamentary banking probe

It was the turn of Westpac New Zealand's top brass in the parliamentary banking inquiry's hot seats this week, fielding questions on whether they milk customers, and whether comparisons banks make between their returns and those of share market listed companies' returns are reasonable.

National's Hamilton East MP Ryan Hamilton queried Westpac NZ's last place in Consumer NZ's bank customer satisfaction survey, which was for a second consecutive year. Westpac NZ CEO Catherine McGrath said moving higher up the survey is a "real focus."

She said the bank's digital services haven't been good enough for customers, and it's now putting a lot of investment into digital.

"One of the things I am happy about is that when we rank our customers in terms of their interaction with people at the bank, over 75% of them would give our team a score of over nine out of 10. So I look at it and go 'I've got great people, we're not serving our customers well enough in some of the tools they've got, in particular the digital tools.' And that's a big area of focus moving forward because I don't want to continue to be at the bottom of that list," McGrath said.

(There's more from McGrath here on getting Westpac NZ off the bottom of the Consumer NZ survey).

What about customer focused KPIs?

Hamilton asked if Westpac NZ has any incentives or key performance indicators (KPIs) in place aimed at reducing or measuring lending rates or providing value for customers.

"The scorecard I have looks at a range of things, one of them is the consumer NPS and a positive trajectory on that," McGrath said.

Asked what the NPS is she said net promotor score, describing it as similar to the Consumer NZ survey.

"Secondly we look at how the Westpac team are feeling, how effectively we're transforming the bank and are we delivering..."

At this point Hamilton interrupted.

"With respect I'm not worried about how the Westpac team's feeling. I'm wondering about the customers. Have you got any clear, articulate KPIs around reducing customer debt or do you just milk them?"

"So one, we don't milk our customers at all and I'm very proud of the support that we give to our customers," McGrath said.

"You can't provide one KPI," said Hamilton.

"Secondly, we have a measure called net promotor score, which is an assessment about how our customers are feeling about the bank and that is part of the measures that we are measured on," McGrath continued.

Westpac NZ Chairwoman Pip Greenwood intervened to explain a net promotor score is an industry wide measure so the bank's hierarchy can see how Westpac NZ's comparing with its peers, rather than just an internal process.

"You don't measure within your own customers how you can provide savings for them, you hide behind this industry standard that says we're cute, everything's alright," Hamilton said.

"No, we have a number of metrics that we look at in terms of customers and customer satisfaction at a granular level as well as a top level," McGrath said.

"So why, for example, haven't you done a home buyer's mortgage lend at just above the cost of capital for say, 1000 customers throughout New Zealand and branch out from what other banks are doing and show innovation?" Hamilton asked.

"We've lent to 5,900 first home buyers in the last year and taken a greater share of the market. Part of the way we're innovating on that is that we are engaging as opposed to particularly leading on price because we're comfortably that our price is competitive," McGrath said, adding Westpac NZ runs first home buyer seminars to help get people confident about "going on that housing journey."

Banks v NZX companies' RoE

Stuart Smith, Finance and Expenditure Committee Chairman and National's Kaikōura MP, drew on an article by economist Cameron Bagrie to ask about whether it was reasonable for the major banks to compare their returns on equity (RoE) with NZX-50 listed companies from different industries.

"You claim 11.8% RoE is okay because an RoE of 11% is the average of NZX companies. But who has the most risk - you or an NZX company? Because you have very little volatility of earnings," said Smith.

"I think that depends on the company concerned...it's variable across the various companies in the NZX, some that have lower risks than us some that have higher risks than us," Greenwood said.

"If you average the banks and average the NZX who would have the most volatility? I'd say the NZX-50, not the big four or five banks," Smith replied.

"I think we'd have to go away and have a look at that," said Greenwood.

Smith went on to quote from Bagrie's article, saying banks are about 85% debt funded, with their weighted average cost of capital at around 7% after tax being significantly lower than other businesses.

Greenwood said banks such as Westpac NZ need to be stable and profitable in order to raise funding overseas, which its customers benefit from.

McGrath, meanwhile, said Bagrie's comparison of NZ big bank RoEs of around 14% with Bank of America's 9% wasn't reasonable given the scale of the US compared to NZ and different types of business Bank of America undertakes compared to the major NZ banks.

"The most accurate comparison is to get markets that are similar. The Nordics and Ireland, [where] economies are broadly similar and the make-up of the business banks do is comparable," McGrath said.

(There's more from Bagrie in our of Interest podcast, arguing why and how the pricing of risk versus the taking of risk by banks needs to change, here).

The parliamentary banking inquiry continues, with the top brass from other banks including BNZ, TSB and Kiwibank, set to appear before MPs prior to Christmas.

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