Speech: Banking services for rural New Zealand.
By Jim Anderton MP
Leader of the Alliance
Credit Union Otago AGM
Fullwood Room, Dunedin Centre
Embargoed: 6.00PM Wednesday, 30 June 1999
Banking services for rural New Zealand.
Thank you for the opportunity to speak to your annual general meeting tonight.
My understanding of the Credit Union movement in New Zealand is that it is based on the idea of financial strength through co-operation. It is committed to local ownership and to public service.
These are values that I strongly support. Tonight, I want to outline some of the ways that I think we can co-operate, and some of the reasons that we need to co-operate.
I travel around New Zealand a lot. I visit many different communities. And the strongest message I get from rural communities and provincial heartland areas of New Zealand is concern over the loss of services.
Hospitals, schools, petrol stations, banks, post offices, police stations and Government Department offices.
One by one, towns and small cities are seeing their infrastructure closed down.
The banking industry is one of the most spectacular examples where communities have felt the loss of their local services.
Last year the major banks closed 109 branches. 151 were closed the year before. One in three bank branches have closed since 1993. With Countrywide and National merging and an on-going programme of closures ahead, we can expect far more communities to lose their banking services unless something is done.
Across the Tasman the ANZ has stopped closing branches. The Australian ANZ chief executive John McFarlane says banks are wasting money by advertising services at the same time that they are closing branches. "It has been damaging banks' reputations the way we have been behaving," Mr McFarlane said.
In New Zealand though, the ANZ alone closed 38 branches in New Zealand last year. In places like Waihi, Wanaka, Mangere, Huapai, Kaitaia, Cambridge, Taupo, Kaikohe, Gisborne. The CEO who oversaw these changes was herself made redundant recently, but got a $5 million handshake to cushion the blow. New Zealand CEOs of companies like Brierley's - who also got $5 million - and government agencies like the Tourism Board, NZQA, and the Fire Service Commission, have learnt quickly from their private sector counterparts.
At the same time that branches have been closed all over the country, bank charges have been steadily climbing.
Without singling out an individual bank, 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 the subject of charges for electronic transactions - I know that Credit Unions face enormous problems in trying to join the EFT-POS system on the same basis as the banks, because of the entry fee they charge for processing your card.
All of the overseas owned banks are charging base fees of $2-3 a month on their cheque accounts as well as transaction fees ranging from 25 cents for electronic transactions to a dollar for manual transactions.
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 increases fees to recoup lower margins on interest rates. But their margins are not shrinking.
Last year as wholesale interest rates fell because of the recession, banks refused to drop mortgage rates anywhere near as rapidly. They charged a margin between 90-day rates and mortgages reaching 3%, while the same banks needed a margin across the Tasman of only half that.
Credit card interest rates were at 21% when floating mortgage rates were at 9%, yet when floating rates were halved, credit card rates only fell by 1-2%.
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.
(Electricity lines companies with a rate of return of 7% or less are in the process of being regulated).
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.
The Alliance has been studying all of these problems and we are committed to finding solutions:
BETTER services for local communities;
LOWER banking charges;
LOWER interest rates
REDUCED overseas debt.
There are a number of ways that we can achieve these solutions. Practical, kiwi-based solutions.
In my view Credit Unions would have to be part of the solution: As locally-owned businesses, committed to your communities, Credit Unions are well positioned to provide the competition that banks need.
However, at the moment, the Credit Union movement is heavily handicapped, and I believe unfairly so. There are a variety of problems. One of the biggest is the cap on the level of deposits that can be lodged with a single Credit Union by any one person. A second is the restriction on the expansion of Credit Unions that exists through statute and the heavy regulation of Credit Unions which contrasts spectacularly with the deregulated banking scene.
You can't compete fairly.
Tonight, I'm announcing that the Alliance will work in partnership with the Credit Union movement and local communities to develop new rules for your industry.
The Alliance believes that, as locally-owned co-operative businesses, Credit Unions should be encouraged, not frustrated.
Not all Credit Unions will want to evolve the same way. Some will want to retain their existing character, while others will want to grow.
We don't want to be too prescriptive in the rules relating to local initiatives. So we'll work with you to develop them.
Our aims will be to:
MAKE the rules fair - and steadily lift the level of deposit any customer can make with a Credit Union;
ENSURE Credit Unions are financially sound and then on individual merit on a case by case basis lift the heavy regulations on Credit Unions so they can more fairly compete in the financial marketplace;
PROMOTE much better competition in the financial sector through both legislative change and fair competition;
RETAIN the local community identity of your New Zealand-owned enterprise.
Many of you will know that the Alliance has also heavily promoted the idea of establishing a publicly-owned New Zealand bank through New Zealand Post. Tonight I would like to talk to you a little about that idea.
First of all, you might be wondering why we don't just leave the field to Credit Unions. That's a fair point.
One reason is that even if the law is changed to allow Credit Unions to grow, most will retain a very local character, and we can't be sure that any will grow to such a scale that they can adequately provide service to the whole country or 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. And I'm not at all sure that that is what most Credit Unions want to do anyway.
Establishing a New Zealand-owned bank through NZ Post will allow us to establish a kiwi bank at virtually no cost to the taxpayer.
The public already owns NZ Post, operating a network of 900 branches around the country, and providing limited banking services on behalf of other financial agencies. Nearly a million people a week walk into its branches. It's a successful State Owned Enterprise with considerable management expertise.
Tonight I can announce, for the first time, that from tomorrow I am putting in the ballot at parliament a Bill to allow NZ Post to establish a retail banking operation.
Financial agency services have always been part of NZ Post's core business and it is a simple and logical step to extend these into a full-scale banking operation.
A publicly-owned bank will mean more jobs, better services in rural communities, lower interest rates, lower bank charges, reduced overseas debt and more competition for overseas owned banks.
Earlier, I said that we would look forward to working with Credit Unions in designing the appropriate legislation to allow your business to grow. I would also like to add that I see enormous potential for partnership between a bank established through NZ Post, and expanded Credit Union activity. For example, through agency services, co-operation in entering the EFT-POS network, capital development and even branch services.
I hope these comments form the basis of some
valuable co-operation in future.