Prime Minister Jacinda Ardern is criticising banks for consistently producing very high profits at a time when others in the community are struggling.
She did not suggest a particular policy to reduce or tax bank profits, but said banks were not demonstrating "social license" and needed to 'engage in some self-reflection.'
Windfall taxes on bank profit margins that are rising because of higher official interest rates have been considered in Britain and Europe. Australia imposed an annual 'Major Bank Levy' of 0.06% of the liabilities of banks with more than A$100 billion of assets in mid 2017, which included Commonwealth Bank (the owner of ASB), ANZ Bank, Westpac, National Australia Bank (the owner of BNZ) and Macquarie Bank. That extra tax on banks was imposed by a conservative Liberal-National Federal Government in July 2017 and is expected to raise A$1.85b per year by 2024/25.
Ardern's comments follow calls from Green Finance Spokesperson Julie-Anne Genter last month for a windfall profits tax on large corporates that benefited from Government support and implied guarantees during the Government's Covid response.
Ardern was asked in her post-cabinet news conference late on Monday afternoon about Westpac NZ's record profit result earlier in the day, with the bank's annual net profit after tax reaching $1.047 billion.
Ardern said the banks generally had not demonstrated 'social license' by repeatedly making very high profits at a time their community was struggling.
"They all seek the same social license. They exist in the community. They know that this is a time where New Zealanders are facing increases in the cost of living like many other of our international counterparts," Ardern said.
"The question I would pose to them is they may be operating as other banks are, but are they demonstrating social license? Are they demonstrating commitment to the communities they are serving by taking profits such as those in these current times. That would be my question," she said.
Asked if they were demonstrating social license, she said: "No."
Ardern agreed the banks were complying with the law on taxes.
"They're continuing to operate within the parameters in the rules that are set, but that doesn't mean that necessarily it's giving them a social license that you would expect from banks who claim to be operating as members of the community and within the community," she said.
"Some have said things like windfall tax. That's actually a very different set of scenarios usually for those where it is being applied. Offshore, you will see in different scenarios they've applied it to, for instance, energy companies who have benefited from particular events," she said.
"The argument here is actually this is a very different set of circumstances. We've seen repeated significant profits being drawn by banks in New Zealand. So this is not what I would argue is a one-off. We've seen this consistently, them posting significant profits. I think there's questions need to be asked to management of these banks as to whether or not they're serving their communities well."
'I don't have a policy solution. Yet.'
Ardern said the Government did not have a policy to address the high profits and said any questions on specifics should be addressed to Finance Minister Grant Robertson. She would not say if the Government was considering naming banking as the next sector for a market study by the Commerce Commission.
"We don't have any particular policy that would have an impact on what we are seeing, but not everything that should change, will change, at the hands of government," she said.
"It is not unusual, of course, for companies or indeed other operators in our communities to assess whether or not what they're doing at any given time is the right way from a corporate responsibility perspective to be behaving. It doesn't always take government intervention for that kind of self reflection to occur.
"I'm simply being frank with you around my observations around what is occurring with bank profits. Do I have a current solution from government on that? The answer is no. But I do share a view as obviously someone that takes a perspective on the behalf of the welfare of all these Zealanders that what we see I don't think is justifiable.
"So I'm not coming here with a policy prescription, but I'm sharing a view. I don't currently have in front of me a Commerce Commission market study that can tell me exactly that level of detail that I can for, for instance, for the grocery sector.
"We know that from the Commerce Commission's work, that the grocery sector in New Zealand is taking excess profit of roughly a million dollars a day. Now I don't have that evidence base in front of me now for the [banking] sector.
"I'm sharing a frank view, but beyond that I don't have a policy prescription."
'There is something wrong with bank profits'
Asked if there was something wrong with the level of bank profits, she said: "In this environment, yes. I'm not speaking to every individual bank and the situation in this market. I'm giving a general response to a question that was asked without giving a policy prescription."
Asked if banks' job was simply to make the biggest possible profits for shareholders, she said: "Sure. But then on that basis at the same time, you see some banks promoting the fact that they are taking an environmentally responsible line by for instance, offering lower interest rates, the decarbonisation initiatives buying EV cars, insulating your home."
"They frequently make decisions that may be seen to be less about profit and more about social corporate responsibility. I'm just asking them to broaden the remit of consideration in that regard, The point I'm making is normal solutions to these questions don't solely come from government.
"Maybe banks themselves may look at their profits that they're posting in this current environment. And ask the question of whether or not in this current environment there is a way that they can support their customers through this period as well."
Asked if 'self reflection' would be enough to change their views, she said: "Obviously that self reflection has not bought change to date, but in this current environment where we are experiencing a significant cost of living issue for all New Zealanders, I feel a responsibility to call on all those who may have the ability to ease that pressure to consider how they may do so and I include the banks in that."
74 Comments
These Australian banks are far bigger & more important than our government. At least they think so and who exactly is going to contradict them meaningfully. So from PM Ardern once more, nothing but piping plaintive words. It’s become embarrassing hasn’t it. She has been spouting nothingness like this now for over five years. OK she fooled a lot of people for a lot of time but by now, she’s just fooling herself if she can’t see that the cindy floss is no longer appetising to the electorate. Needs to go and read Lincoln about trying to fool all the people all the time. This is so pitifully similar as to how she got “really cross” with Scott Morrison over the 501s.
It’s the fault is successive governments:
a) ComCom was not required to take competition strongly enough into account and let ANZ buy The National Bank.
b) Kiwibank is tiny and doesn’t have economies of scale. It will take a long time for it gain market share. All the other banks outside the main ones are tiny players in NZ.
c) Banks are allowed recourse mortgages - this is a crime. In what other industry do you get to chase the debtor forever to repay the loan. It distorts lending towards housing instead of business. House lending should be a level playing field with business lending.
d) perfect competition requires 6 to 7 players with equal market share. We are so far from that with 4 main banks with 80%+. A full review of the banking sector is needed.
100% agree with point c) and would expand on this to consider the OBR where depositors money can be frozen and used to get a bank back on it's feet with only the remaining money returned to depositors.
Surely any money retained and used to stabilise a bank should be converted to equity in the bank. That way a bank nears failure, OBR is initiated, existing shareholders get wiped out and depositors who take a haircut get handed the keys.
The problem with this Government is it is all talk. They have passed CoFI (albeit years too late) and have the FMA set to enforce it. The FMA however needs to understand firstly how the market works in order to then work out how it should work in a fair and transparent manner. The FMA then needs to employ the right resources to match up the "how it does work" with "how it should work" and go after unfair and transparent practice. They probably don't know where to start as it is a big job and most likely you will see a mass exodus of those in the banking sector before CoFI is enforced.
$16.397bn FLP repurchase agreement transactions undertaken between banks (total assets $708.187bn) and the RBNZ involving highly rated RMBS is hardly about to change the collective bank profit outcomes beyond a rounding error if commercial enterprises engaged in this process.
If Ardern wishes to object I would suggest she highlights the contribution of taxpayers to bank profits via the FLP and suggests the banks bear an obligation to taxpayers in return. At least start getting taxpayers to see how much they are supporting bank profits.
According to the Reserve Bank, the new capital requirements mean banks will need to contribute $12 of their shareholders' money for every $100 of lending up from $8 now, with depositors and creditors providing the rest.
Banks should be forced to share their profits equitably with depositors and creditors, since all three parties underwrite lending.
Whose money are they actually lending? If someone sells a property for a profit, and they have mortgages in their name, the bank is entitled to take a cut of that if they so chose as a "right to set off".
So why are the banks are allowed to have loans from the RBNZ, make a profit, and not have to pay down their loans from this profit? The person still owes the bank, but less of the underwritten lending is exposed to OCR movements. Instead they skim along the minimum capital ratios and cream the top off and leave the taxpayer heavily exposed.
Whose money are they actually lending? No one's.
Banks don't take deposits and they never lend money. They are in the business of purchasing securities. When one gets a bank loan, the loan contract is a promissory note. The bank purchases that contract from the borrower. Now the bank owes the borrower money and it creates a record of the money it owes, which we call deposits - source.
Regulation is a malformed response to corporate misbehaviour and lack of responsibility. E.g. council regulation to try to protect ratepayers and taxpayers from the building industry's misbehaviour and lack of responsibility.
We must look at corporate law and the role and responsibilities of companies in society instead of to just more regulation. The idea that companies' only responsibility is shareholder returns is incorrect.
Seems like her issue is interest rate increases crushing household budgets. They’re increasing because of her governments out of control spending and intergenerational debt. Two years ago they were begging for banks to keep lending, they even rolled out free money with the Funding for Lending programme well after the housing market has started surging. Now she acts like the banks did something wrong by listening to government and doing exactly what she asked. If she wants inflation to come back down there’s nothing stopping her taking radical action like in 2020 and slashing government spending by $20 billion
Cindy is oblivious and getting scared about the polls. Perhaps its dawning that she is the fa e of the problem. Stop giving away free money, and terminate FLP immediately. Banks clearly dont need any more help. Get inflation under control. 200 base points.
Yes the speculative to FOOP themselves and rush to the exits.
Debt will become cancerous. Time to take the medicine...
Acyually a waste of Space...Mostly on Planes flying around burning fuel to help imptove "Climate Change"......NOT.!
A strange Worlld we live in.....the idgits are running and flying us into "Global Warming"....
As is of course all those involved with "Do as I say...Not as I do".......Duh!.......Must go out and buy a Ute.....and get Fly Buys......When I buy over priced Diesel....at them Fueling Cost Stations.
A nutters World.....led by even bigger Nutters. Fuel Growth with even more debt.......Why Dont...cher Jacinda and her Robertson Lending Partner......Orr am I just '''''''MISTAK-EN"
Growl....
Those wayward contradictions within themselves, explain exactly why this government is wilfully partnering the construction of wide bodied jet airport in the middle of good land in Central Otago whilst at the same time proclaiming loudly & proudly “climate emergency.” It’s not so much the left hand doesn’t know what the right hand is doing, this government doesn’t know what either of them are doing, or what they have done, will do. Case in point again this article. The banks have simply helped themselves, been gifted the cream on the top of the pail, while milk is fast dripping out the holes in the rusty bottom. But now the PM bleats the banks are just too much aren’t they. Old gift horse proverb in full play here.
... just for fun , let's do a little maths : suppose the market capitalization of the ANZ is $ 200 billion ... and just suppose that in an average year they get a 7 % profit on M/C via a loan book of $ 500 billion ... their PE ratio is 14 , around market average , their profit margin is 3 % ... all very reasonable ...
And , given their sheer size their total profit is $ 14 billion ... so , it's not a super profit ... it's a good year ... and shareholders would expect a decent dividend ...
To be fair capitalism as we know it and it's feudalism predecessor have never operated under a social licence or responsibility. The free market will never solve the problems it creates - privatise the profits, socialise the costs.
Either society itself has to create this ethical 'value' and encourage the institutions to follow. Or the leaders of these institutions have to go against the grain of shareholder capitalism, develop this responsibilty in their firms and lead by example.
It almost reads like a Tui ad...
Lashing out at all and sundry now the votes are disappearing.
BUt as usual, no action.
- Regulate lending rates to +/-0.25% of the OCR
- Impose additional tax on profit over 100mil.
- make all loans non-recourse.
For a Govt with a mandate they seem to think they can't control anything.
First time Comrade Arden has said anything remotely sensible!
Mind you, mismanagement thanks to her merry band of muppets deliberately fuelled masses of investment away from productive business directly....into....dolls houses!
On one hand, my own highly efficient dental clinic was forced shut for three months resulting in personal hell, huge debt and anarchy upon being allowed to re-open.
On the other, an investment property increased in value by 30% in 12 months!
Sell the property, bank the tax free gains, then be forced out of the business adding to the health deficit in an already unattractive environment and BOOM....
Of course tut tut you naughty banks and you naughty supermarkets.
I used to look at Labour as well intended but reasonably harmless bunch of loud mouths! Not anymore.......................................
Dear esteemed PM,
You could, I dunno, use your giant majority in parliament to pass some legislation against the banks (you know, the same majority you'll be using to ram 3 Waters through, for example). You might even salvage your seemingly doomed political career in the process.
Thanks,
A voter
Westpac just announced a 64 cent dividend, still well short of the 80 cents they paid pre-pandemic.
The excess profit didn't go to the shareholders.
A lot of bitter and twisted people here. Did you just have your mortgage payments increased...maybe realestate agents.
Lets not have another waste of money autopsy/enquiry on how we got here...it not rocket science . Can we get Aucklanders to plant a pine tree in their backyard to help offset global carbon emissions and help the farmers retain some of their productive land. Social contract.... Id like too also see the electoral act changed so that list members cannot take ministerial positions...lol
"...When regulation renders house prices absurdly expensive, you need entities that will facilitate very large amounts of debt. Big banks require lots of capital, and on lots of capital lots of money can and should be made. But if the left is so convinced there is money for jam on offer there is a readily accessible market response: buy more shares with their own savings.
Instead, from the party that wants to make us all poorer, force people to live in expensive townhouses, and do all they can to discourage cars and planes (oh, and free speech too), yesterday we got a proposal that there should be an “excess profits tax”.
...Except that whether one uses their AES measure, or national accounts measures there isn’t anything very remarkable about profits in recent years – except of course that there is lots of inflation, but even then as that final chart shows returns to labour in total have been growing at about the same rate of returns to providers of other resources."
Kiwibank only made $131 million to June 2022, why dont kiwis switch to keep profit here?
https://www.kiwibank.co.nz/about-us/news-and-updates/media-releases/202….
WTF!…. Stalinda is telling the banks off for being greedy!?!!
THe Commandant should look at her governments fiscal GREED & WASTE & DEBT.
TAXES HAVE INCREASED
INFLATION AND COL ARE UP
BILLIONS HAVE BEEN TAKEN IN TAXES AND THEN WASTED
Under her leadership she should be looking at her own CONSCIOUS MORAL ABILITY to be fairer with the billions she is in charge of .. and sort her own fiscal disaster out.... And stop fat boy " Robbing Son" from dictating to the RB
Oh for a decent opposition ---- FLP anyone -- JA is directly responsible for some of these monster profits and this program should have been stopped MONTHS ago if it ever needed starting in the first place -- hell thats direct taxpayer money inflating their bloody profits !!!
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.