Deputy Prime Minister Speech Opening Credit Union
Hon Jim Anderton
Deputy Prime Minister
OPENING OF SOUTHLAND CREDIT UNION
52 Don St, Invercargill
4:30PM Thursday, 6 April 2000
As Minister for Regional Development I’ve taken an interest recently in the activities and behaviour of petrol companies.
I simply asked why petrol companies have to charge as much as seven cents a litre more in places like Invercargill than they charge in Auckland.
There is no doubt that there is a high level of public anger and disgust with the way petrol companies have treated New Zealanders.
But any criticism that can be levelled at petrol companies pales alongside the banks.
If there is one industry that has served New Zealanders badly over the last decade at least, it is banking.
Why is it that the Deputy Prime Minister of New Zealand is enthusiastic about flying all the way to Southland for the opening of a new office of the Southland Credit Union?
Most significant provincial communities, and all the smaller communities, are feeling the loss of essential services.
Hospitals. Schools. Petrol stations. Post offices. Police stations. Government Department offices.
One by one, towns and small cities are seeing their infrastructure closed down.
And the service that communities have lost faster than any other is banking.
It is no coincidence that the loss of banking services has coincided with the loss of New Zealand control over virtually the entire banking sector.
When I entered Parliament in 1984, the banking sector was dominated by institutions like the BNZ, Postbank, regional trust banks.
All publicly owned, New Zealand banks.
There was a rural bank lending to farmers. A publicly owned venture capital bank, the DFC.
And the presence of those banks kept the overseas-owned banks honest.
Every one of them had to have a branch in each town.
Customers didn’t only have a bank branch where they could deposit and withdraw their funds – without charge. They had a choice of banks.
The major banks are closing branches around New Zealand by the hundred.
Across the Tasman the ANZ has stopped closing branches. The chief executive said banks are wasting money by advertising services at the same time that they are closing branches.
At the same time that branches have been closed all over the country, bank charges have been steadily climbing.
It is typical for a bank to charge $1 for a manual transaction across the counter, and 50 cents to take your own cash out of an ATM. Not to mention $25 to cancel a cheque.
On top of that, all of the overseas owned banks are charging base fees of $2-3 a month on their cheque accounts.
Financial sector experts estimate that bank fees will continue to rise - by up to 50% over the next two years.
Banks say they need to increase fees to recoup lower margins on interest rates.
But the margin banks charge between mortgage rates and their base 90-day rate is sometimes as much as twice the level in New Zealand that the same banks charge in Australia.
Isn't it interesting also how all the banks just happen to move their prices at the same time and by the same amount?
The five big banks - ANZ-Postbank, ASB, BNZ, National Bank and WestpacTrust - made a combined after tax operating profit in New Zealand last year of $1100 million dollars.
They paid dividends to their overseas shareholders of over $1000 million, adding to our total overseas debt which now stands at $101 billion.
90% of their profits are not being reinvested in banking in New Zealand, but are being claimed by overseas owners, who are collecting a return on their assets of 28%.
That's a very high rate of return for a large company.
The last Government regulated electricity lines companies when they were earning a rate of return of 7% or less.
Banks will tell you that we have too many branches.
New Zealand has one branch for every 3439 people. England has one for every 1400 people. France has one for every 2200 people. Australia has one bank branch for every 3036 people, and has stopped closing branches.
So they all have far more branches than us.
Australia also more ATMs than us - one for every 2169 people. We have one for every 2486. We have slightly more EFT-POS terminals than Australia - one for every 63 people compared to their one for every 98.
But you would expect that when retailers are increasingly having to act as bankers in many communities.
When a bank closes, the whole community is affected. If people run out of cash they are less likely to spend in local shops. Staff lose their jobs.
Local businesses lose access to local banking facilities and expertise.
Local retailers bear the cost of providing EFT-POS facilities for the whole town. The lack of adequate banking facilities can deter investors from establishing new enterprises.
In summary, banks have been doing to local communities what the Crusaders did to the Highlanders last week…in the first half!
It’s time local communities fought back.
I’ve been studying all of these problems and I’m committed to finding solutions:
BETTER services for local communities;
LOWER banking charges;
REDUCED overseas debt.
MORE local community control over our own destiny.
There are a number of ways that we can achieve these solutions.
I’m here today, showing my support for the Credit Union movement, because Credit Unions are a crucial part of the solution.
Doug McLaren from the Association of Credit Unions has been a frequent caller to my office in the last year.
We’ve been listening to the Credit Unions and working on the ways we can help them to grow.
We want Credit Unions to help to fill the gap in service that has been left behind as the banks have left.
Credit Unions are locally-owned, and committed to your communities.
At the moment, Credit Unions are restricted from being able to compete fairly.
One of the biggest problems is the cap on the level of deposits that can be lodged with a single Credit Union by any one person.
A second problem is the restriction on the expansion of Credit Unions that exists through statute.
The heavy regulation of Credit Unions contrasts spectacularly with the deregulated banking scene.
I’ve raised the issues with the Minister of Finance, Dr Cullen, who has responsibility for Credit Union laws.
He and I have agreed that, as locally-owned co-operative businesses, Credit Unions should be encouraged, not frustrated.
There needs to be more flexibility.
Not all Credit Unions will want to evolve the same way.
I know that here in Southland, for example, you have a very progressive and dynamic Credit Union. It is determined to expand as a significant provider of financial services in Southland.
As I understand it, however, you don’t have plans to grow into a national organisation.
In some other parts of New Zealand, Credit Unions are not as vibrant, while I’m sure there are others that have even more ambitious plans.
I believe there is an excellent case to be made for some fundamental changes to allow Credit Unions to develop and retain your local New Zealand-owned indentity.
These changes include:
MAKING the rules fair by lifting the level of deposit any customer can make with a Credit Union;
TAILORING the level of financial oversight and monitoring to the merits of individual Credit Unions.
ALLOWING for expansion. This can be geographical. It can also be through emerging electronic means such as the Internet.
I should also make some comment about the concept of a Kiwi bank.
Many of you will know that I’ve been vocal about the prospect of establishing a publicly-owned New Zealand bank using the New Zealand Post branch network.
You might be wondering why we don't just leave the field to Credit Unions.
One reason is that even if the law is changed to allow Credit Unions to grow, most will retain a very local character.
I doubt that Credit Unions are ready or keen to move quickly to provide adequate service to the whole country, or to compete effectively with overseas owned banks.
I'll give you an example of what I mean by this. There is one New Zealand-owned bank left - the Taranaki Savings Bank. It is very successful.
But unfortunately it provides its excellent services only to the people of the Taranaki region. If you live outside the Taranaki, then to take advantage of the TSB's free cheque account, for example, you have to maintain an account balance over $5000.
That is why we need a nation-wide bank - a people's bank. Our Bank.
If you evolve into something like that, then I wish you all the luck, and you will have my support. But I'm not going to leave things to chance.
Officials in my office are currently working on a plan to open a New Zealand owned bank, using the NZ Post network.
It’s a complex field and the details are not yet ready for public announcement.
The core of the idea is that NZ Post already has an extensive branch network. It already provides financial agency services on behalf of other banks. It has skilled counter staff. It is publicly owned.
It can provide banking services without having to cover the costs of running branches solely as a bank. If its costs are lower, it won’t have to charge enormous bank fees to cover them.
The bank will be established without any cost to the taxpayer. Michael Cullen won’t write out a cheque each year to subsidise bank accounts.
That wouldn’t be fair to Credit Unions, among others.
It will have to succeed on the basis of its lower existing cost structure.
If it needs more capital than NZ Post can prudently provide, or more financial expertise than NZ Post currently possesses, then we may need to bring in a partner.
But the bank will be majority New Zealand owned.
The public already owns NZ Post. Nearly a million people a week walk into its branches. It's a successful State Owned Enterprise with considerable management expertise.
I am keen to get the idea up and running as soon as possible. So it is likely that it won’t offer everything that the existing overseas-owned banks offer when it first opens its doors.
It may not offer all the services that Credit Unions offer.
But it may offer some that Credit Unions don’t offer, and don’t want to.
There is potential for a partnership between a Kiwi bank and expanded Credit Union activity. For example, through agency services, co-operation in the EFT-POS network, and even branch services.
A Kiwi Bank and expanded Credit Unions are complementary ideas. They are both innovative, strategic steps towards New Zealanders taking back control of our essential services.
They provide the means to do it at both local and national levels.
In combination, over time, the strategy should deliver more jobs, better services in rural communities, lower interest rates, lower bank charges, reduced overseas debt and more competition for overseas owned banks.
I welcome the development of the Southland Credit Union.
The presence of a new office here in a central Invercargill location is a sign of a thriving and vibrant business.
The growth of Credit Unions and the growing interest in the sector reflects the heartfelt desire of New Zealanders to have some control over our economic destiny.
The service is filling a vital need and, in opening the office, I congratulate you on filling that gap.