They completely dominate the New Zealand commercial sector
in terms of profitability and have a huge impact on the domestic economy,
particularly residential property.
The four banks — ANZ Bank New Zealand, ASB Bank, Bank of New
Zealand and Westpac New Zealand — reported combined statutory profits after tax
of $5128 million for the latest year, a 9.2 per cent increase over the same
period in 2016/17 (see table).
These figures totally dwarf the largest listed NZX companies
as illustrated by the following figures:
- Net earnings of the four largest NZX companies — Auckland
International Airport, Meridian Energy, Fisher & Paykel Healthcare and a2
Milk — were only $855m for the latest year compared with $5128m for the four
banks.
- Net earnings for the next six largest NZX companies — Spark
New Zealand, Ryman Healthcare, Fletcher Building, Mercury NZ, Contact Energy
and Port of Tauranga — were $838m for the 2018 financial year.
- Thus, net earnings for the 10 largest NZX companies in the 2017/18 year were $1693m, one third of the four largest banks. Looking at it another way, the 10 largest NZX companies reported aggregate net earnings 15 per cent below the $1986m achieved by ANZ Bank New Zealand.
ANZ Bank New Zealand is a massive cash cow compared with
most NZ companies but ASB Bank, Bank of New Zealand, and Westpac New Zealand
aren’t far behind.
These four banks also dominate the banking sector with a
combined market share of 82.7 per cent, with ANZ having a 32.5 per cent share,
ASB 20.4 per cent, Westpac 15.0 per cent and BNZ 14.8 per cent.
The next largest banks are Kiwibank, with a 7.2 per cent
market share, TSB Bank (3.6 per cent), Southland Building Society (1.7 per
cent), Rabobank New Zealand (1.6 per cent), Heartland Bank (1.3 per cent), and
The Co-operative Bank (1.3 per cent).
Kiwibank, TSB Bank, Southland Building Society, Heartland
Bank and The Co-operative Bank, with a combined market share of 15.1 per cent,
are the only New Zealand-owned banks.
These NZ-owned banks are much smaller in terms of
profitability with Kiwibank reporting net earnings after tax of $115m for the
June 2018 year, TSB Bank $52m, Southland Building Society $27m, Heartland Bank
$68m and The Co-operative Bank $10m.
Big is best as far as profitability is concerned as the four
largest banks had $62m of net earnings per 1 per cent market share, while the
five NZ-owned banks had only $18m of net earnings per 1 per cent market share.
The Big Four use their massive banking sector dominance to
move into other areas, including KiwiSaver.
The four Australian parent companies of the NZ banks — ANZ,
Commonwealth Bank (CBA), National Australia Bank (NAB) and Westpac — also have
a dominant position across the Tasman with a combined market share of 78.0 per
cent.
This is slightly lower than the 82.7 per cent market share
of their NZ subsidiaries.
Overseas ownership of our four major banks is a huge loss to
the economy in terms of the dividends remitted overseas and the finance
sectors’ under representation on the NZX.
The MSCI World Index has a 16.3 per cent weighting to the
financials with JPMorgan Chase and Bank of America included in the index’s top
10 companies.
By comparison Heartland, which is the only domestic-owned
bank listed on the NZX, has a sharemarket value of $0.9b or just 0.6 per cent
of the NZX’s total value.
The four Australia-owned banks would have a combined NZX
value between $60b and $70b if they were listed on the domestic sharemarket.
This would be a huge boost to the NZX as it has a current value of only $135b.
But that is not the case even though ANZ New Zealand was
listed on the NZX between 1980 and 1986, Bank of New Zealand was listed between
1987 and 1992, and ASB was fully owned by ASB Community Trust. They were all
sold to Australian interests for a fraction of their current value.
The release of the Financial Markets Authority (FMA) and
Reserve Bank of New Zealand (RBNZ) inquiry into the banks was awaited with
interest because of the sector’s commercial dominance and massive
profitability.
The report, “Bank Conduct and Culture. Findings from an FMA
and RBNZ review of conduct and culture in New Zealand retail banks”, was
released earlier this week.
However, two statements in the report indicated it would
take a relatively light-handed approach to the subject.
The first was: “The FMA and RBNZ are New Zealand’s two main
regulators of financial markets. The FMA focuses on conduct regulation of some
financial market participants, and the RBNZ focuses on maintaining a sound and
efficient financial system through prudential regulation. Neither regulator has
a direct legislative mandate for regulating the conduct of providers of core
retail banking services (lending, credit, bank accounts.)”
When a regulator writes that it has no “direct legislative
mandate” then this analysis will be light, particularly in relation to large
banks because they have substantial legal resources to challenge these reviews.
The second comment was: “The review was not an audit of
individual files or accounts, or a detailed investigation of historical cases
like that of the Australian Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry”.
This statement also gave a clear indication that the FMA and
RBNZ was taking a much lighter approach to its bank conduct and culture
assessment than the Australian Royal Commission.
However, the NZ report determined: “There are inherent
conflicts of interest in the provision of financial services. This is
particularly apparent in vertically or horizontally integrated firms such as
banks, which both ‘manufacture’ financial products, and provide advice and
sales. We have seen these conflicts play out in the design of sales incentives,
and in the lack of investment in systems and processes for measuring and reporting
on customer outcomes.”
The FMA/RBNZ report went on to note: “A survey earlier this
year by Consumer NZ found 27 per cent of people reported receiving unsolicited
product offers from their bank. Similarly, our consumer survey found 24 per
cent of respondents had received an offer of a product they did not want or
need. Stakeholders told us some customers have reported that they feel pressure
to purchase products from their bank in these situations. This is supported by
the results of our survey, where 15 per cent reported feeling pressure from
bank staff to purchase products they did not want or need.”
This issue has been a major focus of the Australian Royal
Commission but the FMA/RBNZ adopted a softer approach.
One of the obvious areas of conflict is KiwiSaver and the
ability of the banks to use their distribution to capture huge market shares.
The four major banks and Kiwibank had a 64.2 per cent share
of total KiwiSaver funds of $50.8b at the end of June.
Simplicity’s Sam Stubbs is a huge critic of the banks’
strong market position but these major banks continue to attract more and more
KiwiSaver funds.
Since the end of 2017, ANZ has increased its KiwiSaver funds
by $1289m, ASB by $1055m, Westpac $623m, Kiwibank $489m, BNZ $306m and
Simplicity $193m. Simplicity has made good progress but it is extremely
difficult to compete against the banks because of their huge financial
resources and substantial distribution capabilities.
Considering these, it seems inconsistent that the Commerce
Commission approved the merger between ANZ Banking Group (New Zealand) and The
National Bank of New Zealand, two hugely profitable banks with strong market
positions, where it rejected the merger between NZME and Stuff, two media
companies struggling against fierce international competition.
The main conclusions are that the four major
Australian-owned banks have a charmed life in New Zealand. This enables them to
report huge profits and successfully fight off smaller competitors.
Brian Gaynor is Head of Investments at Milford Asset Management. This article first appeared in the NZ Herald.
No comments:
Post a Comment