Editorial: Bumper bank profits are a double-edged sword

New Zealand's four largest banks are Australian owned. Image / File

EDITORIAL:

Another record result for one of New Zealand's biggest banks comes with both good and bad tidings for our country.

ASB this week released its half-year result showing it made a cash profit of $742 million in the last six months of 2021, up 22 per cent on the same period in 2020.

Like all of the banks, ASB has been buoyed by a strong housing market and a stronger than expected economy.

Part of the reason for the record profit from it and rivals Westpac NZ, ANZ NZ, and the BNZ has also been a write-back in impairment losses.

That means many of the loans to businesses and individual consumers which banks thought could go bad with the impacts from the Covid-19 pandemic and its lockdowns haven't done so.

Businesses have managed to keep paying their debts and consumers have not been forced into mortgagee sales or no-asset procedures to pay off debts.

That's the good side of banks doing well.

The other side is that New Zealand's four largest banks are Australian-owned and pay much of the money they make to their owners.

Before Covid-19 hit in the 2019 financial year, ANZ NZ, ASB, BNZ, and Westpac NZ collectively paid more than $5.2 billion in ordinary dividends to their Australian parents.

That stopped temporarily in April 2020 when the Reserve Bank of New Zealand announced it had agreed with all the banks that there would be no payment of dividends during the period of economic turmoil caused by the pandemic.

In March 2021, it then eased the policy to allow banks to pay up to 50 per cent of earnings in dividends. That restriction will remain in place until July 1, at which point the Reserve Bank has said it intends to lift the restrictions completely.

Since that easing, three of the big four banks have already paid out $1.833 billion to their parent companies with ANZ NZ shelling out the most at $908m, followed by ASB paying $650m and Westpac NZ, $275m.

BNZ has so far not resumed its dividend payments but is bound to follow the other three.

That is money flowing out of New Zealand that will not be spent boosting our economy.

Last year, Westpac floated the idea of selling or listing its New Zealand business on the stock exchange.

If a listing had gone ahead, it would have been a great opportunity for New Zealanders to share in the profits of one of our largest banks.

Sadly, its Australian parent decided to keep the New Zealand subsidiary. The New Zealand arms of the big four banks are high earners for their Australian parents and they well know it.

Australia's financial services industry has a stranglehold on New Zealand, owning all of our largest banks and general insurance companies.

New Zealand is a small market and it's unclear whether our population base would be big enough for New Zealanders to own a large chunk of our financial services sector.

But the downside is that the interest, fees and premiums paid by Kiwis go into the back pockets of Australian shareholders.