Stock Takes podcast: Should NZ have a banking inquiry?

New Zealand's four largest banks have assets worth over $500 billion. Image / File

New Zealand’s banks earned a record $7 billion last year but Massey University’s Claire Matthews isn’t convinced their profits are excessive.

“If you look at it from a purely dollar value $7 billion is simply a huge amount of money in anyone’s book. But we have to remember they are huge organisations,” Matthews told the Stock Takes podcast.

She said the big four banks - ANZ, BNZ, ASB and Westpac between them managed around $500 billion in assets.

“So when you look at the $7 billion they make in terms of profit, it actually is not that much. And then if you look at their return on capital, it’s not that different to other companies, and in fact, it’s lower than some companies. So for me, it’s really hard to argue that they’re making excessive profits.”

Despite that Matthews does believe a market study by the Commerce Commission into the sector would be a good idea.

“I think we do need it, but not for the reasons that I’m concerned about what the banks are doing, and in terms of we need to investigate the banks.

“I think we need it because there’s a lot of disquiet amongst the population. There has been for some time, but it’s growing. And because of the political calls for some action, I think we need to do something. So therefore, I do think we need to have a market study.”

Exactly what the study would find or recommend is unclear. But in the past commentators have suggested Kiwibank needs to be beefed up to allow it to properly compete with the big four Australian banks.

Matthews said for Kiwibank to compete it would have to be much larger and that would require significant capital input.

“If that’s a good idea, then maybe that should be done. But for it to be a good idea, we have to be absolutely convinced that there is a lack of competition and therefore that it’s needed.

“And we have to think about actually, is that a good use of the Government’s money?”

Matthews said a year ago putting extra capital into KiwiSaver was something the Government could have done, even with Covid still around.

“I think with what’s been happening this year, [with the cyclone and floods] and the fact that they’re having to cover a whole lot of things, I can’t see it happening in the short term and I remain unconvinced that it’s really necessary.”

Stock Takes is available on iHeartRadio, Spotify, Apple Podcasts, or wherever you get your podcasts. New episodes come out every Wednesday and are brought to you with support from Fisher Funds.