KEY POINTS:
This is the final installment in the Herald's series on banking.
When the current account deficit blew out this year to a size economists described as "monstrous", Statistics New Zealand fingered foreign-owned banks as major culprits.
And bank workers' union Finsec
probably spoke for many New Zealanders when it said: "We are seeing New Zealand's overall economic well being worsened by the Australian-owned banks sending higher profits back across the Tasman."
But others see advantages in having our banks in foreign hands.
The current account deficit consists largely of the gap between what foreign investors earn in New Zealand (including interest on debt) and the return on our investments abroad.
The increase in interest paid to offshore investors was mainly due to the banking sector's overseas debt, Statistics NZ said.
"The New Zealand banking and energy sectors generated most of the rise in profits attributable to overseas direct investors," it added.
ASB business manager Peter Hall recently said most of his bank's $440 million June year net profit was retained here for reinvestment.
But according to Statistics NZ: "In the June 2006 quarter, foreign-owned New Zealand companies mostly chose to pay out profits as dividends, rather than retain earnings."
New Zealand's Australian-owned big four banks control 90 per cent of the sector's $254 billion in assets, which the Reserve Bank estimates is equal to about 15 per cent of their parents' total assets.
New Zealand ownership of the Australian banks is paltry. Just over 2 per cent of Westpac's shares are owned by New Zealanders. And Kiwis own little over half a per cent of the stock of ASB and BNZ parent banks, the Commonwealth Bank of Australia and National Australia Bank respectively.
New Zealand's largest bank, ANZ/National, did not provide information on how much of its stock was held by New Zealanders.
While tax issues prevent New Zealanders from increasing their holding in big Australian banks, those not comfortable with Australia's dominance can still vote with their money.
"We have quite a few [New Zealand-owned] options now: PSIS, Southland Building Society, TSB, Kiwibank," said KPMG banking expert Andrew Dinsdale. "They have been getting a bigger market share on the basis of their New Zealand ownership. They are playing to their strengths."
And a new regulatory environment being worked by the Ministry of Economic Development, with the Business Law Reform bill, will pave the way for locally owned institutions to offer more services and increase their market share.
The locally owned share of the market might be growing, but it is still small. However, as Kiwibank pointed out, the products it and other smaller locals are offering have led to more competitive fees and rates across the market, a point that even the big banks concede.
Further up the food chain, ANZ's decision to pull the plug on Feltex and send in the receivers has left more than a few people wondering whether a New Zealand bank might have cut the company more slack.
ANZ/National chief executive Graham Hodges was quick to duck the subject when talking about the bank's annual result, saying that ANZ's loans to Feltex were done out of Australia and therefore he couldn't comment.
However, the local investment banker wasn't convinced Feltex would have received better treatment from a locally owned bank.
"My guess is that New Zealand banks are probably a little more risk-averse than some of the Australian ones.
"[Australian owned] banks have become a lot more sophisticated about risk management and have become much better at providing risk-aggressive products. They know that you don't have to back every cent, that you should expect a few deals to go bung."
Similarly, Dinsdale said that inter-national banks offered products, innovation "and a lot of things we probably wouldn't probably do in New Zealand".
"I'm not advocating 100 per cent foreign ownership but I wouldn't ever advocate 100 per cent New Zealand owned, it puts all your eggs in one basket."
For that reason he regarded the Australian dominance of the industry as far from ideal. But he said overseas ownership wouldn't worry him if it was reasonably diversified.
"It's just a factor of our small economy. ANZ has been operating in New Zealand for over 100 years, Westpac for over 150. BNZ was a New Zealand bank and it failed twice and we had to bail it out. It didn't show very good banking skills."
No matter where the banks were owned, New Zealand would still pay interest on overseas borrowings.
"They've still got to find wholesale money. They have to source it somewhere, they tend to go to the international markets."
Finsec campaigns director Andrew Campbell said there was more to the issue of Australia's dominance than just the amount of money flowing offshore.
"If you're Australian-owned, the incentive to invest and really promote a different model of operating in New Zealand is possibly not there."
With the Australian-owned banks' cost-to-income ratios lower here than Australia, "to a degree the business model which has been practised in New Zealand ... has really been to use us as, in effect, a cash cow".
"Our concern about that is that ... that's not good both for the workforce here and the country."
Finsec recently launched its Better Banks campaign to introduce industry-wide standards on pay, targets, staffing and other conditions.
But Campbell said that local ownership did not offer the best deal to employees.
For example, he said that at the PSIS and TSB "the terms and conditions there are slightly less than [at] the Australian-owned banks".
"Whilst those banks, credit unions and building societies have maintained a media profile as a result of being New Zealand-owned, and often do good deeds in their community, often that has been at the expense of wages.
"The key issue for us is not necessarily who owns them per se, the key thing is how they behave."
