New Zealand regulator fingers banks’ ‘persistently high profitability’
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.
Australia’s four largest banks have $NZ300 billion ($278 billion) of home loans in New Zealand, representing 86 per cent 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”.
New Zealand’s Finance Minister Grant Robertson (second from right) and Commerce Minister Duncan Webb announcing the investigation into banking competition in Wellington in June. Robert Kitchin
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 per cent. The government faces an election in October.
Citing Reserve Bank of New Zealand data, it said the five-year average return on equity of the major banks’ New Zealand subsidiaries “sits above those of the selected large banks in all other peer countries other than Canada, above both the large and small banks in Australia, and is more than double the average of the small New Zealand banks in the sample”.
The banks have been given a month to respond to the preliminary findings ahead of a final report due in August next year. The attention on
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