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RBNZ Governor comments on bank profit data

Tuesday 4 December 2012, 4:42PM

By Reserve Bank of New Zealand

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Reserve Bank Governor Graeme Wheeler today commented on bank profitability data that was released recently to the Green Party.

The Bank also released the data for the period 2009-2011, which shows returns on equity and assets of New Zealand banks appear to be in line with other advanced economies (excluding euro area countries).

Mr Wheeler said the Bank commissioned the data before the Finance and Expenditure Committee hearing into the Bank’s Financial Stability Report on 7 November. However, the analysis was not complete at the time of the hearing, at which he was asked about bank profits.

“My response to the Select Committee represented my understanding of the information available at that time. Our analysis was completed after the hearing and we released it to the Green Party in response to their request, which followed the hearing. We are now releasing it publicly.”

Mr Wheeler said different measurement practices around the world, including or excluding tax and extraordinary items, meant that international comparisons of bank profit figures are not straightforward.

“Profits in the New Zealand banking system reflect relatively low levels of non-performing loans, and low cost-to-income ratios, compared with many other countries,” Mr Wheeler said.

Mr Wheeler denied the Green Party’s statement that the Reserve Bank is biased in favour of Australian banks.

“The Reserve Bank takes seriously its mandate from Parliament to supervise the New Zealand banking system, and it does so without favour. Australasian-owned banks emerged in better shape from the global financial crisis because of their more conservative management, and our economies benefit from that strength.

“New Zealand’s strong banking system helped see the country through the global financial crisis.

“As I said at the Select Committee hearing, bank profitability has recovered to where it was prior to the global financial crisis, based on returns on assets. If you look at the return on equity, they haven’t got back to where they were prior to the global financial crisis, and that’s partly because these banks are building up capital as part of the tougher Basel III regulatory requirements.”