Complacency over bank profitability causing long-term damage to the economy

Excess profits in the banking industry and the high level of foreign ownership of the banking sector is causing long term damage to the economy, the Green Party said today.

Parliamentary Library research released today reveals that the big four trading banks - ANZ, BNZ, Westpac, and ASB - have collectively made more money in the four years following the Global Financial Crisis than in the four years preceding it. When a similar analysis is done for all New Zealand industries, the four years following the Global Financial Crisis have been disastrous, with profits down 15 percent.

"Outgoing Reserve Bank governor Alan Bollard last week admitted that New Zealand's big four Australian-owned banks earn more out of New Zealand than banks in most other countries," said Green Party Co-leader Dr Russel Norman.

"His complacency is astounding, for the excess profits banks are making are simply damaging the rest of the New Zealand economy and contributing to our number one problem - a high and persistent current account deficit.

"Parliamentary research released today shows that the Global Financial Crisis has barely affected the profitability of the big four Australian banks, with three of the four reporting record profits in the last financial year.

"For New Zealand industry, the Global Financial Crisis has hit our private sector severely, reducing profits by 15 percent overall in the years immediately following.

"The challenge for the new governor of the Reserve Bank, Graeme Wheeler, will be to promote competitive behaviour in our banking sector so that the rest of the economy isn't suffering due to excessive profit-taking.

"The challenge for the Government is to build up our New Zealand-owned banks to stem the flow of profits offshore.

"Currently, New Zealand-owned banks make up only six percent of our banking sector."

The Green Party has proposed a number of solutions to address the lack of competition in the banking sector and the high degree of foreign ownership.

"We can increase competition in our banking sector by strengthening Kiwibank and other New Zealand-owned banks," Dr Norman said.

"A strong Kiwibank is an integral part of a smart, green economy.

"By injecting capital into Kiwibank and allowing it, in time, to become the Government's banker, we can increase its capacity to compete fairly with the much bigger Australian banks.

"Kiwibank can also be the retail arm of our proposed default KiwiSaver provider.

"The banking sector is the lifeblood of the New Zealand economy. It's important we get it right so that all businesses can prosper, not just the big four foreign-owned banks."

Related internet links
Link to Parliamentary Research on bank profitability