The news that the four main banks in New Zealand, all foreign owned, made record profits in the last financial year, and shipped those profits offshore, generated little obvious controversy. But economists and commentators agree that NZ’s oligopolistic banks are in a privileged position. They can create their own wealth out of thin air, lend it out to the public, charge rent on it in the form of interest, and shift profits offshore. This means the banks share ‘an extraordinary privilege’ not enjoyed by any other type of business. But their huge market share means the four biggest banks operating in New Zealand, are among the most profitable in the world, and last year, they made their biggest profits in three decades.
The biggest banks in New Zealand, ANZ, BNZ, Westpac, and ASB, all owned by Australian banks, who all own each other, plus Kiwi owned, Kiwibank, collectively made a $5.19 billion profit last year, including a massive increase of 7.35% or $355.11 million in net profit, after tax, last year. They own $504.19 billion in (NZ) assets. The four big overseas banks own about 90% of New Zealand’s banking industry, as well as insurance and other financial services. Though they’re bit players, other overseas banks also recorded record profit increases, with three Chinese banks, growing profits by as much as 139%. 95% of those total whopping great banking profits leave the country and are lost to peoples’ disposable incomes, to their pockets, and the New Zealand economy.
Unfair fees and charges, arbitrary interest rates and induced debt, add to poverty, dangerously high levels of personal debt, a distorted housing market, inequality, and economic instability. Banks act like parasites, sucking the money and life out of debtors and shifting the profits off shore.
Fees comprise almost 40% of the banks’ profits, and the big four Australian owned banks in New Zealand charge higher fees here than their Aussie parents do at home. New Zealander debtors are wage slaves to overseas owned banks who owe no loyalty to their customers (It’s a business transaction), or their staff (note banking sector layoffs of late), or communities (branch closures). These banks encourage debt and trap the public in to unjustified credit and account charges. In a perfectly competitive market with ‘well informed and rational consumers’, customers would reflect their dissatisfaction with such a rort by finding another bank. But when the main banks dominate the market (“monopolistic competition”), and customer inertia is high, it’s hard to swap banks and most of them are the same in different guises anyway. Marginal competition means marginal choice, and maximum chance of consumer capture.
Unfortunately, high fees and lending rates from banks that lack integrity, are little disincentive when would be home owners are faced with the decision to borrow on usurious conditions or not to borrow and own a home at all. (And then there’s the housing speculation fueled by enthusiastic bank lending). Even though bank switching is likely at major life changing junctures, even where customer dissatisfaction with banks is high, bank switching is infrequent because of the transaction costs and other complications involved. Surprisingly also, most people are satisfied with their bank. In a recent survey, the banking sector had a customer performance ranking of 79.5% satisfaction. This is a high satisfaction rate compared with overseas standards, but though the smaller banks score more highly than the overseas institutions, the bigger banks dominate market share.
The ANZ is our biggest bank, with around one million Kiwi customers and 31.3% of the market. The ANZ lending business is worth about $72.35 billion, with net loans worth $117.24 billion. That reflects staggering wealth to have in the hands and at the mercy of overseas banks. But the imbalance within the banking system goes as far as the top. The CEO of the ANZ, David Hisco in 2015, earned about $5million, 120 times the pay rate of the ANZ’s lowest paid workers. The CEO of the Commonwealth Bank in Australia who owns the ASB, earns $A12.3 million per annum, in three days what the average Aussie earns in a year.
Cheap credit and eager bank lending mostly by overseas banks, has fueled the New Zealand housing market and left citizens with household debt higher than ever before, sitting now at 167.5% of household income. That’s debt you know the banks would be more than willing to call in if interest rates rose and current lending viability and profit expectations were negatively affected.
So while New Zealand’s attention, and that of the government, is on the alleged impact of foreign ownership of residential houses on the inflated property market, the biggest foreign owners of New Zealand wealth (current and future), in the form of Australian banks, goes unaddressed. Foreign ownership of banks is of greater scale here in New Zealand than almost anywhere else in the world. Net interest margins and profitability rates are higher here than in most other developed countries. Our current and future earnings, wealth, and real estate are in the hands of foreign banking oligarchs. That’s of greater concern, and greater scale, than individual foreign ownership of houses. But there will be no crack down on the banks, in fact in times of crisis, they’re more likely to be bailed out or at least assured of some security, because they’re too big to fail. Attention to small scale overseas buyers of residential land in New Zealand is a misplaced energy, when a magnitude of different wealth is extracted, debt created, and a housing boom exaggerated, by the construction of credit, the entrapment of debt, and the transfer offshore of profit by the big four overseas banks who are the major players in the New Zealand finance sector.
The old saying is as apt as ever “The law locks up the man or woman, Who steals the goose from off the common, But leaves the greater villain loose, Who steals the common from the goose”.