9 November 2012

Reserve Bank must regulate banks, not be their champion

New Zealand’s foreign-owned banks are some of the most profitable in the world, the Green Party said today.

Parliamentary Library research shows that the big four Australian-owned banks – ANZ National, BNZ, ASB, and Westpac – are amongst the most profitable banks in the world and this differs from Reserve Bank advice to Parliament this week that said that our foreign-owned banks’ return on assets was ‘about average’ among developed nations.

“Earlier this year, the Bank for International Settlements found that Australia's big four banks were the most profitable in the developed world for 2010 and 2011 and record results this year suggests that picture is unlikely to be any different,” said Dr Russel Norman.

“In 2011, the big four Australian banks made a pre-tax return of 1.19 percent on assets compared with a global average of 0.36 percent.

“Our Australian-owned banks are actually some of the most profitable in the world, contrary to advice recently given to Parliament by the Reserve Bank Governor.

“When you make the comparison of the profitability of our banks with the rest of our economy, it’s very clear our banks are making excessive profits to the detriment of jobs and incomes.

“Our big four Australian banks made average before tax returns on equity of 20.9 percent in 2011. This compares to a before tax return of 6.6 percent across all industries in New Zealand.”

Return on assets is a good measure to compare bank performance with other banks. Return on equity is the best measure to compare bank performance with other industries.

“Our former Reserve Bank Governor said excess bank profits were the price we had to pay for a stable banking industry,” said Dr Norman.

“I’m concerned that our new Governor has adopted this same complacent mantra leaving our banks to make excess profits to the detriment of the rest of the economy.”

Excessive bank profits act as a drag on the wider economy raising the cost of borrowing for productive enterprises, farmers, and home owners. Dr Norman also denied that excess profits were a sign of a strong banking sector.

“Lehman Brothers, Merrill Lynch, Royal Bank of Scotland, HBOS, and Bear Stearns were returning anything from 19–26 percent return on equity in the year before they collapsed requiring massive tax-payer bail-outs and sending the world’s economy into deep recession,” Dr Norman said.

“We can’t afford to have a complacent bank regulator that looks at excessive bank profits and then looks away.”
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