New Zealand’s major banks fronted MPs today, as the Parliamentary inquiry into banking competition continues.
ANZ reported a full-year profit of almost $2.1 billion last year and chief executive Antonia Watson said she understood the perceptions around its large profit.
“Our profitability is around about our cost of capital, and I think it’s a very fair profit, but I can absolutely see why people think that’s a big number.”
Watson believed having large banks in the economy was important, because you had the “ability of economies of scale” and financial stabilities that large companies with “good resources” can offer.
“Some of these regulatory requirements that we’ve complied with over the last few years have taken enormous amount of resources, and we’ve got the resources to be able to implement those well.”
Watson was later asked about the sustainability of lending and said “our business is lending money,” to which Greens co-leader Chloe Swarbrick replied “and making money”.
Watson responded by saying the business was “making a fair return for our shareholders”.
She said the bank had invested $18 billion into New Zealand, “so we’re the biggest importer of foreign capital into New Zealand that we believe”.
ANZ also explained it could rack up losses if forced to lend to businesses considered risky.
New Zealand First introduced a bill last month aimed at preventing banks from refusing services to firms based on ethical metrics.
It came after BNZ revealed it was pulling back from lending to petrol stations due to risks around their long-term future.
Watson said it was not opposed to new petrol stations, but it could not lend to everyone.
“We don’t want to bank every petrol station in the country, just like we don’t want to bank every farmer in the country. That’s a concentration risk decision.”
She explained if there were a lot of petrol stations that approach ANZ for lending, there was a point in time they would say ‘actually, probably not’.
ANZ said petrol stations looking for loans needed plans in case their revenue dropped.
Impact of official regulation
The Bank of New Zealand was the second of the big four before the select committee Monday morning.
In addition to questions about its profits, return on equity, and open banking, there was a good deal of attention on the impact of official regulation on the BNZ.
A recommendation from the Commerce Commission market study was to loosen Reserve Bank rules to allow easier entry for small financial concerns.
Recently-departed Governor Adrian Orr was opposed to any significant loosening of the rules.
BNZ chair Warwick Hunt gave a considered and diplomatic view on whether the rules should be relaxed.
“We have capital settings that have been set on the basis of a one-in-200 year expected event.
“That is an extremely conservative setting.”
Hunt said the bank had a series of other regulatory settings around conduct, credential supervision or the environment.
“Those things all are arrived at, are applied, and we then have to pick them up and apply those.”
When asked if the bank was too conservative, Hunt responded that it was “at the very conservative end of the spectrum”.
ASB chair Dame Therese Walsh said the bank was “leaning in hard in terms of Māori lending.”
Labour MP Arena Williams asked both ANZ and ASB about lending to Māori, and to Māori businesses, and the general issue of lower Māori homeownership and business ownership rates.
Both banks spoke about the lack of data available due to privacy reasons, which Williams said was a problem when trying to address issues of “financial inclusion”.
Watson called it a “wicked problem”, because there were privacy issues when asking someone applying for a home loan for their ethnicity.
“I don’t know how I’d feel about that,” she said.
But Watson said it was a “growing sector”.
“This is an opportunity for us. This is a growing sector, so we’re absolutely keen to bank it.”
Watson confirmed ANZ had not been considering a “Māori-led bank” as a solution.
Walsh echoed the difficulties around clear data.
“It’s tricky in terms of segmentation and understanding the population. There are privacy issues and many other things.”
But she said they’d had many board meetings bringing in mana whenua, and “leaning in to help them accelerate”.
Walsh said ASB was one of the first to lend on collectively-owned land.
“That was quite some time ago. We know we’ve got more to do.”
